-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, RV238vZa5CS1FMUi9zPn3LPdTUbKTtggkDXpWnuvyk81txHeFfNdZuofhWznMFuT Jq9X4rJK5IwN0Qjr6e//7A== 0000950130-95-000528.txt : 19950616 0000950130-95-000528.hdr.sgml : 19950616 ACCESSION NUMBER: 0000950130-95-000528 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950321 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIPOSOME CO INC CENTRAL INDEX KEY: 0000786557 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 222370691 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14887 FILM NUMBER: 95522187 BUSINESS ADDRESS: STREET 1: ONE RESEARCH WAY STREET 2: PRINCETON FORRESTAL CTR CITY: PRINCETON STATE: NJ ZIP: 08540 BUSINESS PHONE: 6094527060 MAIL ADDRESS: STREET 1: ONE RESEARCH WAY CITY: PRINCETON STATE: NJ ZIP: 08540 10-K 1 FORM 10-K S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N Washington, D. C. 20549 F O R M 1 0 K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 3l, l994 Commission file number 0-14887 T H E L I P O S O M E C O M P A N Y, I N C. (Exact name of registrant as specified in its charter) Delaware 22-2370691 ------------------------------- ------------------ (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) One Research Way, Princeton Forrestal Center, Princeton, New Jersey, 08540 ------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(609) 452-7060 -------------- Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.0l Par Value; Depositary Shares each representing 1/10 of a share of registrant's Series A - Nasdaq Cumulative Convertible Exchangeable Preferred Stock; Series A Cumulative Convertible Exchangeable Preferred - Nasdaq Stock, $.01 Par Value --------------------------------------------- (Title of Class) 1 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] Aggregate market value of the voting stock held by non-affiliates of the registrant as of January 31, 1995, was approximately $11.50 based upon the last reported sales price of the registrant's Common Stock on the Nasdaq National Market. At January 31, 1995 there were 24,018,309 shares of the registrant's Common Stock outstanding and 2,760,000 shares of registrant's Depositary Shares outstanding (representing 276,000 shares of Preferred Stock). DOCUMENTS INCORPORATED BY REFERENCE Document Form l0-K Part -------- -------------- Proxy Statement for l995 Annual Meeting Part III 2 THE LIPOSOME COMPANY, INC. 1994 ANNUAL REPORT - FORM 10-K TABLE OF CONTENTS -----------------
ITEM NO. PAGE - --------------------------------------------------------------- ---- Part I......................................................... 4 1. Business............................................. 4 Overview/Business Strategy........................... 4 Product Development.................................. 6 Manufacturing........................................ 12 Marketing Strategy................................... 13 Human Resources...................................... 13 Product Liability.................................... 13 Patents and Proprietary Technology................... 14 Governmental Regulation.............................. 15 Competition.......................................... 16 Executive Officers................................... 17 2. Properties........................................... 20 3. Legal Proceedings.................................... 20 4. Submission of Matters to a Vote of Security Holders.. 20 Part II........................................................ 21 5. Market for the Registrant's Common Equity and Related Stockholder Matters.................................. 21 6. Selected Financial Data.............................. 22 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 23 8. Financial Statements and Supplementary Data.......... 27 Part III....................................................... 28 10. Directors and Executive Officers of the Registrant... 28 11. Executive Compensation............................... 28 12. Security Ownership of Certain Beneficial Owners and Management....................................... 28 13. Certain Relationships and Related Transactions....... 28 Part IV........................................................ 29 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................................. 29
3 PART I ------ Item l. Business - ----------------- OVERVIEW/BUSINESS STRATEGY The Liposome Company, Inc. (the "Company") is a leading biotechnology company engaged in the discovery, development and, recently, the commercialization of proprietary lipid and liposome-based pharmaceuticals for the treatment, prevention and diagnosis of inadequately treated, life-threatening illnesses. The Company is currently launching its first product, amphotericin B lipid complex (ABLC (R) or, in Europe, Abelcet TM), which has been approved for marketing for certain indications in the United Kingdom and is the subject of marketing application filings in eighteen other countries. The Company expects to file a new drug application ("NDA") for ABLC (R) in the United States during 1995. In addition to ABLC (R)/Abelcet TM, the Company's other lead products are TLC D-99 and TLC C-53. TLC D-99, liposomal doxorubicin, is being developed in conjunction with Pfizer Inc. ("Pfizer") primarily as a first line treatment of metastatic breast cancer, and is undergoing Phase III clinical testing in the United States. The Company has completed a Phase II clinical trial for TLC C-53, liposomal prostaglandin E1, for the treatment of acute respiratory distress syndrome ("ARDS") and is preparing a protocol for a pivotal clinical trial of TLC C-53 for ARDS. In January, 1995, the Company commenced a Phase II clinical trial of TLC C-53 for the treatment of acute myocardial infarction ("AMI"), or heart attack. ABLC (R)/Abelcet TM, amphotericin B lipid complex, is for the treatment of systemic fungal infections, primarily in immunocompromised patients such as cancer chemotherapy patients, organ and bone marrow transplant recipients and people with AIDS. In February, 1995, the Company received approval from the Medicines Control Agency of the United Kingdom to market Abelcet TM as a first line treatment of cryptococcal meningitis and systemic cryptococcosis in patients with AIDS and for the treatment of severe systemic fungal infections in patients who have not responded to conventional amphotericin B, or to other systemic antifungal agents, or who have renal impairment or other contraindications to conventional amphotericin B. Over 1,300 patients worldwide had been treated with ABLC (R)/AbelcetTM through December, 1994. The Company expects to file its first NDA, for ABLC (R), for the second line treatment of aspergillosis (a severe systemic fungal infection) in the United States during 1995. There can be no assurance that any NDA filing by the Company will ultimately be approved by the U.S. Food and Drug Administration ("FDA"). TLC D-99, liposomal doxorubicin, is targeted for the treatment of a variety of solid tumors, most importantly metastatic breast cancer. TLC D-99 is being jointly developed by the Company and Pfizer pursuant to an agreement entered into in 1990. The Company has completed three Phase II clinical trials testing TLC D-99 as a first line treatment of metastatic breast cancer. Two Phase III clinical trials commenced in December, 1994. In November, 1994, researchers from the M.D. Anderson Cancer Center presented results of one of the Phase II studies, where TLC D-99 was given in combination with cyclophosphamide and 5- fluorouracil to metastatic breast cancer patients. The researchers reported that, of the 41 patients in the trial, 29 were evaluable at that time. Of those 29 patients, there was an overall response rate of 69% (20 patients). Of these, 18 patients demonstrated a partial response (defined to include a reduction in tumor size of 50% or more), and two patients demonstrated a complete response. TLC C-53, liposomal prostaglandin E1 ("PGE1"), is for the treatment of severe acute inflammatory and vaso-occlusive conditions, including ARDS and AMI. Preclinical trials have shown favorable results with TLC C-53 in models of AMI and in models of systemic inflammatory response syndrome ("SIRS"), including endotoxemia and ARDS. The Company has completed a Phase II study of TLC C-53 for the treatment of ARDS and plans to initiate a pivotal study 4 following discussions with the FDA. In January, 1995, the Company commenced a Phase II clinical trial of TLC C-53 versus a placebo, each in conjunction with t-PA, heparin and aspirin, for the treatment of heart attacks. The Company and Schering AG, Berlin ("Schering AG") entered into a collaborative research and development agreement with respect to TLC I-16, a non-ionic contrast agent for use in connection with CT scanning of the liver. TLC I-16 is currently in preclinical development. The Company also has a continuing discovery research program which concentrates primarily on the treatment of cancer and inflammatory conditions. 5 PRODUCT DEVELOPMENT The following table summarizes the principal product development activities of the Company:
WORLDWIDE MARKETING PRODUCT USE STATUS(1) RIGHTS ------- --- --------- --------- ANTI-INFECTIVE ABLC(R)/AbelcetTM Systemic Fungal Infections United Kingdom-- The Liposome Co. Marketing approval received(2) 18 other countries-- Marketing applications filed U.S.-- Expect to file NDA during 1995 CANCER TLC D-99 Metastatic Breast Phase III ongoing; Pfizer(3) Cancer High dose Phase II ongoing Kaposi's Sarcoma Phase II ongoing Pfizer(3) TLC I-16 CT Imaging Agent Preclinical Schering AG for Liver development Metastases INFLAMMATION TLC C-53 ARDS Phase II completed; The Liposome Co. Pivotal clinical trial being planned Sepsis/SIRS Phase I completed; The Liposome Co. Phase II to be initiated in 1995 TLC C-54 Inflammatory Preclinical The Liposome Co. Conditions including development Rheumatoid Arthritis and Systemic Lupus Erythematosus CARDIOPULMONARY TLC C-53 AMI Phase II ongoing The Liposome Co.
__________ (1) Preclinical development denotes work to refine product performance characteristics and studies relating to product composition, stability, scale-up, toxicity and efficacy to create a prototype formulation in preparation for the filing of an IND application with the FDA for authority to commence testing in humans (clinical studies). Phase I-III clinical trials denote safety and efficacy tests in human patients in accordance with FDA guidelines as follows: Phase I: Dosage and tolerance studies. Phase II: Detailed evaluations of safety and efficacy. Phase III: Larger scale evaluation of safety and efficacy potentially requiring larger patient numbers, depending on the clinical indication for which marketing approval is sought. See "Governmental Regulation." (2) Marketing approval in the United Kingdom has been received for AbelcetTM as a first line treatment of cryptococcal meningitis and systemic cryptococcosis in patients with AIDS, for the treatment of severe systemic fungal infections in patients who have not responded to conventional amphotericin B or other systemic antifungal agents, and for patients who have renal impairment or other contraindications to conventional amphotericin B. (3) The Company has marketing rights in Japan. 6 TECHNOLOGY The Company's products are based on its proprietary technology which employs liposomes or lipid complexes as either a vehicle to deliver an active therapeutic ingredient or as an active component of a drug. Liposomes are microscopic man-made spheres composed of lipids that can be engineered to entrap drugs or other biologically active molecules. In many cases, liposomal pharmaceuticals can provide better efficacy and less toxicity than might otherwise result from alternative therapies. In addition, the Company believes that it is developing the first product, TLC C-53, in which liposomes comprise active components of a pharmaceutical. It is anticipated that the Company's products will be administered through intravenous injection. PRODUCTS IN CLINICAL TRIALS The Company has three products in various stages of human clinical trials for multiple indications: ABLC(R)/AbelcetTM, TLC D-99 and TLC C-53. ABLC (R) (AbelcetTM in Europe)--Amphotericin B Lipid Complex ------------------------------------------------------------ Systemic fungal infections are a major threat to those patients whose immune systems are compromised, such as cancer chemotherapy patients, organ and bone marrow transplant recipients and people with AIDS. The Company is developing ABLC(R) as a treatment for these fungal infections. Over 1,300 patients worldwide were treated with ABLC(R) in comparative and open-label clinical trials as well as in emergency use protocols through December, 1994. Amphotericin B is a broad spectrum polyene antifungal agent, which has been marketed for many years as a treatment for many systemic fungal infections, including candidiasis, cryptococcosis, aspergillosis and other yeast or mold infections. However, the utility of amphotericin B has been limited by its propensity to cause serious side effects, particularly to the kidney. The Company is developing ABLC(R), which consists of amphotericin B in a lipid complex and is designed to reduce the risk of toxicities associated with amphotericin B while maintaining at least equivalent efficacy. In June, 1994, the Company commenced two Phase III clinical trials for ABLC(R) in the U.S. The first trial is testing ABLC(R) as a treatment for patients with aspergillosis who are either refractory to or intolerant of conventional amphotericin B or who have renal impairment that precludes treatment with amphotericin B. The second is a randomized trial comparing ABLC(R) to conventional amphotericin B in the empiric treatment of presumed fungal infections in neutropenic patients. In October, 1994, investigators from the National Cancer Institute ("NCI"), the M.D. Anderson Cancer Center, the Children's National Medical Center and the H. Lee Moffitt Cancer Center, in a poster presentation at the 34th Interscience Conference on Antimicrobial Agents and Chemotherapy, showed encouraging results in patients with systemic fungal infections receiving ABLC(R) who previously did not respond to, or who were intolerant of, existing antifungal therapy. In addition, patients who had suffered nephrotoxicity resulting from prior treatment with amphotericin B or who had preexisting renal impairment showed a statistically significant improvement in kidney function when placed on ABLC(R). The researchers concluded that ABLC(R) provided effective therapy in patients with invasive mycoses unresponsive to or intolerant of previous antifungal therapy, that ABLC(R) was well tolerated and that ABLC(R) was not associated with dose-limiting nephrotoxicity. Since December, 1993, the Company has filed applications to market ABLC(R)/Abelcet TM in nineteen countries. In February, 1995, the Company received approval to market amphotericin B lipid complex under the trademark AbelcetTM from the Medicines Control Agency of the United Kingdom. The indications for which AbelcetTM was approved were as a first line treatment of 7 cryptococcal meningitis and systemic cryptococcosis in patients with AIDS and for the treatment of severe systemic fungal infections in patients who have not responded to conventional amphotericin B or to other systemic antifungal agents or who have renal impairment or other contraindications to conventional amphotericin B. The Company believes it may receive marketing approvals in additional countries during 1995 and in later years. In one of the foreign countries in which a marketing application for Abelcet TM has been filed, the Company has received a preliminary indication that the application may not be approved or that additional studies may be required as a condition of approval. The Company expects to file an NDA for ABLC (R) for the second line treatment of aspergillosis in the United States during 1995. The Company has not yet submitted an NDA in the United States, and no assurance can be given that with respect to the Company's NDA for ABLC(R) that it will be accepted for consideration, that it will be promptly reviewed, that the FDA will find the data submitted adequate or that it will ultimately be approved. The Company owns worldwide rights to manufacture and market ABLC(R). In 1985, the Company entered into a licensing and development agreement for ABLC(R) with the E.R. Squibb & Sons Company, now BMS. As of January 1, 1993, the Company reacquired these rights from BMS and assumed all financial responsibility for the development of ABLC(R). The Company has agreed to pay BMS a royalty on worldwide sales of ABLC(R)/AbelcetTM. The Company has also entered into a supply agreement with BMS for amphotericin B raw material, but is free to access alternate suppliers of such raw material, subject to regulatory constraints. TLC D-99 -------- The Company and Pfizer are jointly developing TLC D-99, a liposomal doxorubicin, for the treatment of a variety of solid tumors. The primary emphasis of the program has been to develop the drug as a first line treatment of metastatic breast cancer. Over 400 patients were enrolled in TLC D-99 clinical trials through December, 1994. One of the most widely-used chemotherapeutic drugs is doxorubicin, which is used in the treatment of many solid tumors, leukemias and lymphomas. Doxorubicin, in addition to the acute toxicities typical of chemotherapeutic drugs, can cause irreversible cardiac damage which is often the cumulative dose- limiting factor for anthracycline chemotherapeutic agents like doxorubicin. Virtually all anticancer drugs in typical doses can cause side effects such as emesis (vomiting), alopecia (hair loss), mucositis (inflammation of the mucous membranes) and myelosuppression (depletion of blood cells). The individual maximum dosage given to a patient is limited by these and other toxic side effects. One of the serious toxicities associated with doxorubicin is the necrosis (open sores and tissue damage) that will occur when free doxorubicin is accidentally injected into subcutaneous tissue rather than the vein (an extravasation event). During Phase I trials with TLC D-99, three episodes of extravasation took place, and no necrosis was observed. Preclinical studies indicate that, as compared to free doxorubicin, TLC D-99 has greatly reduced toxicity, including cardiotoxicity and mucositis. In a preclinical model, TLC D-99 was shown to deliver, at comparable doses, two to three times as much drug to the site of the tumor as compared to free doxorubicin. In addition, preclinical studies in standard tumor models comparing the use of TLC D-99 and free doxorubicin to treat leukemia and several solid tumors show a better tumor response and an increase in the survival period of the test animals receiving TLC D-99 as compared to free doxorubicin. 8 The Company conducted Phase I human clinical testing of 38 patients at Roswell Park Memorial Institute, in Buffalo, New York. In this trial, TLC D-99 was less acutely toxic to the patients than would be expected with free doxorubicin at comparable doses. In December, 1992 and May, 1993, the Company completed patient accruals for two Phase II trials in patients with metastatic breast cancer; one was conducted at four hospitals associated with McGill University Hospital in Montreal, Canada and one was conducted at multiple sites in the United States. Data from these trials is being compiled and evaluated. In November, 1994, researchers from the M.D. Anderson Cancer Center presented results of a third Phase II study of TLC D-99 given in combination with cyclophosphamide, an anti-neoplastic agent, and 5-fluorouracil to metastatic breast cancer patients. The researchers reported that, of the 41 patients in the trial, 29 were evaluable at that time. Of those 29 patients, there was an overall response rate of 69% (20 patients). Of these, 18 patients demonstrated a partial response (defined to include a reduction in tumor size of 50% or more), and two patients demonstrated a complete response. The researchers also concluded that the encapsulation of doxorubicin appears to permit higher cumulative doses than would be expected with conventional doxorubicin because of the diminished cardiotoxicity. In December, 1994, two Phase III trials were commenced by Pfizer to test TLC D-99 as a first line treatment for patients with metastatic breast cancer. One trial compares TLC D-99 with conventional doxorubicin while the other compares a combination of TLC D-99 and cyclophosphamide, with doxorubicin and cyclophosphamide. The objective of each study is to show that TLC D-99, alone or in combination with cyclophosphamide, is as effective as conventional doxorubicin alone or in combination with cyclophosphamide, but that TLC D-99 is significantly safer, particularly with regard to cardiotoxicity. Each trial is expected to be conducted at twenty or more sites. The Company and Pfizer are also conducting trials using very high doses of TLC D-99 in combination with granulocyte colony--stimulating factor ("G-CSF"). As part of this program, the Company and the NCI have been conducting a Phase I trial at Dana-Farber Cancer Institute, in Boston, Massachusetts to test the safety and efficacy of increasing doses of TLC D-99 in combination with G-CSF. Preliminary results of this study were presented at the Seventh World Conference on Lung Cancer in June, 1994. Although the trial was primarily designed to test the safety of TLC D-99 in high doses, partial clinical responses (tumor reduction exceeding 50 percent) were recorded in three of twelve patients with non-small cell lung cancer, two of two patients with mesothelioma and three of four patients with small cell lung cancer. Non-small cell lung cancer and mesothelioma historically have a very low response rate to chemotherapy. In 1994, the Company commenced a Phase II clinical trial to test high doses of TLC D-99 as a treatment for metastatic breast cancer. The trial objective is to demonstrate superior efficacy and acceptable safety of very high doses of TLC D- 99 as compared to what could be expected with conventional doxorubicin. Patients are currently being accrued in this trial. If results of this trial are positive, the Company expects to conduct a Phase III clinical trial of high doses of TLC D-99 to treat metastatic breast cancer. Additionally, a Phase II clinical trial to test TLC D-99 as a treatment for Kaposi's Sarcoma is ongoing. In November, 1990, the Company entered into a development and license agreement for TLC D-99 with Pfizer. Pfizer is funding the development and clinical trials of the product. The Company received a payment upon signing the agreement with Pfizer and is entitled to be reimbursed quarterly in advance of expenditures, based on an agreed-upon annual budget, for virtually all of its costs to be incurred in connection with product development and clinical testing, to receive payments upon reaching certain milestones, and to receive royalty payments with respect to product sales. The agreement has no fixed term and is terminable at any time upon notice by Pfizer, in which event 9 Pfizer would be responsible for reimbursement of the Company's expenses for up to a six-month period following termination and all rights to the product would return to the Company. The Company has all rights to market TLC D-99 in Japan. TLC C-53 -------- The Company is developing TLC C-53, liposomal PGE/1/, for the treatment of a variety of severe acute inflammatory conditions and vaso-occlusive diseases. TLC C-53 is the first product known to the Company in which liposomes comprise active components of a pharmaceutical. Anti-inflammatory Applications. Many disease conditions are believed to be the result of a complex cascade of events leading to the uncontrolled activation of certain cells in the body: neutrophils, platelets and endothelial cells. These cells, once activated, adhere to each other and to certain other cells, thus perpetuating, and in some instances leading to, a pathological enhancement of the inflammatory response. When the body receives an insult, such as infection, massive trauma or heart attack, cells can release into the blood a variety of chemical agents or mediators including interleukin-1 ("IL-1"), tumor necrosis factor ("TNF"), and others. When any of these mediators encounters certain types of cells in the body such as neutrophils (cells that circulate in the bloodstream) or endothelial cells (cells that form the lining of the blood vessels), these cells may become activated. When neutrophils and endothelial cells are activated they can then adhere to each other as part of the normal inflammatory response. In some patients, the normal process of activation continues unchecked and an inflammatory condition known as SIRS, including ARDS and sepsis, may result. SIRS is an often fatal condition that includes subsets of conditions such as ARDS and sepsis. It stems from a variety of severe insults including trauma, burns, aspiration and hyperoxia. Clinically, patients exhibit abnormalities in body temperature, heart and respiratory rate and white blood cell count. The condition is often associated with development of failure of several body organs. In ARDS the organ which fails is the lung. Clinically, white opacities are seen in the lung fields on radiological examination, reflecting the congestion of the lung air spaces with fluid that has leaked through capillaries that had been damaged by mediators of inflammation released by the activated neutrophils. Forty to sixty percent of the approximately 150,000 patients in the United States annually afflicted with ARDS die because the lungs become so full of fluid that oxygen can no longer be transported with efficiency into the blood. There is currently no satisfactory therapy for ARDS. Sepsis is the systemic response to infection. In sepsis, a somewhat similar if not identical process of abnormal activation of neutrophils and other cells which circulate in the bloodstream occurs. This process is responsible for the failure of a number of body organs including the lungs, the kidneys, the liver and the brain, often resulting in death. TLC C-53 appears to function as a unique "universal off-switch" that not only prevents neutrophils from being activated by IL-1, TNF, and other factors, but also may deactivate these cells even after they have been activated. By inhibiting neutrophils in this way, TLC C-53 is believed to prevent abnormal cellular adhesion which in turn prevents the release of the mediators of inflammation, such as oxygen free radicals and lysosomal enzymes. In 1990, the Company commenced preclinical development of TLC C-53, including efficacy tests with TLC C-53 in preclinical models of ARDS and AMI. In two animal models of ARDS tested at The Webb-Waring Lung Institute, one of the leading ARDS research centers in the United States, it was shown that TLC 10 C-53 could significantly prevent the leakage of fluid into the lung. In 1992, the Company filed an IND with the FDA and started Phase I safety trials in healthy volunteers in the United States and in Europe. During 1994, the Company conducted a Phase II trial of TLC C-53 as a treatment for ARDS. Results of the 25 patient randomized, placebo controlled trial were presented at the Society of Critical Care Medicine's 24th Educational and Scientific Symposium in February, 1995. The investigators concluded that in patients with ARDS, TLC C-53 was associated with statistically significant improvement in oxygenation (the ability of the lungs to transmit oxygen into the bloodstream) at three days, increased lung compliance (an indirect measure of lung function), and decreased dependency of patients on mechanical ventilation. The investigators also concluded that TLC C-53 was well tolerated. Cardiovascular Applications. The factors discussed above that activate neutrophils and endothelial cells also activate platelets, a type of blood cell that, among other functions, plays a key role in blood clotting. Platelets are also activated when they contact the cells that line the arteries, which can often occur during coronary angioplasty. Once activated, platelets adhere to each other (called aggregation) as well as to endothelial cells and the extracellular matrix. In some patients, myocardial wall damage may occur after the coronary arteries have been opened by the infusion of t-PA. This so-called "reperfusion injury" is believed to be initiated by activation of neutrophils. TLC C-53, in addition to inhibiting neutrophils, is believed to inhibit platelet aggregation. This combination of drug effect may hold promise for more patients with AMI to achieve complete patency (reopening of the coronary arteries) following treatment with t-PA and may also allow a faster clot to lysis time. It also holds the potential for reducing reperfusion injury and subsequent cardiac damage. In November, 1994, the Journal of the American College of Cardiology published results from preclinical studies of TLC C-53 conducted by Dr. Richard Smalling, Professor and Co-Director of the University of Texas Medical School's Division of Cardiology. In a canine model of heart attack, Dr. Smalling showed that treatment with TLC C-53 just prior to administration of the clot-dissolving agents streptokinase and heparin, resulted in faster reopening of the blocked blood vessels that caused the attack. Additionally, the arteries opened more fully, blood flow to heart tissue was improved, and there was less damage to the heart when TLC C-53 was given, compared with placebo. At year-end 1994, the Company started a Phase II randomized, placebo controlled trial to evaluate TLC C-53 as an adjunct to t-PA in the treatment of heart attacks. In the trial, patients will receive either TLC C-53 or a placebo in addition to t-PA, heparin and aspirin. The first patient was enrolled in January, 1995 at the Hermann Hospital and the Texas Medical Center in Houston, Texas. OTHER PRODUCTS UNDER DEVELOPMENT The Company is also developing other liposome based products that are in earlier stages of development. These include: TLC I-16 -------- The Company has conducted basic research on an innovative technology for making liposomes called interdigitation fusion. The first product produced by this new process is a liposome-encapsulated non-ionic iodine-based contrast agent, TLC I-16. The Company is developing TLC I-16 with Schering AG. TLC I-16 contains a high concentration of the contrast agent, allowing it to be 11 effectively used for CT scanning of the liver and may provide a more sensitive technique for the detection of tumor metastases. Preclinical studies conducted at Brigham and Women's Hospital in Boston have shown that the Company's product can permit greatly enhanced CT images of the liver and spleen over longer periods of time. In December, 1990, the Company entered into an agreement with Schering AG (the "Schering Agreement") for the development, testing, manufacturing, and marketing of TLC I-16. The Schering Agreement, as amended, provides for the co-development of TLC I-16 by the Company and Schering AG. It also provides that, upon commercialization, the Company is to manufacture and Schering AG is to market and sell TLC I-16 worldwide. Schering AG will also provide certain development funding, make payments upon the achievement of certain milestones and pay royalties on worldwide product sales. TLC C-54 -------- The Company is developing TLC C-54, a liposomal PGE1 distinct and different from TLC C-53, for use in the treatment of auto-immune diseases such as rheumatoid arthritis and systemic lupus erythematosus. TLC C-54 is currently undergoing preclinical testing. TLC A-60 -------- TLC A-60 is a unique, patented liposomal vaccine adjuvant designed to boost the protective effect of vaccines against various diseases. In January, 1992, Wyeth-Ayerst and the Company signed an agreement under which Wyeth-Ayerst began the development of a liposomal influenza vaccine with TLC A-60. During 1994, Wyeth-Ayerst conducted Phase I and Phase II clinical trials of the vaccine. In March, 1995, Wyeth-Ayerst advised the Company that it intends to return its rights to TLC A-60 to the Company. The Company has not yet reviewed the results from Wyeth-Ayerst's Phase II trials, but, based on its current understanding, will consider seeking another corporate sponsor to develop TLC A-60 as an adjuvant for an influenza vaccine. No assurance can be given that such a corporate sponsor relationship will be entered into. RESEARCH PROGRAMS The Company is conducting research in the areas of cancer and inflammation and has an in vitro and in vivo screening facility, including cell lines and a mouse xenograft capability to support its cancer research. Its inflammation research is directed towards the discovery and development of new and improved anti- inflammatory agents. The Company is also conducting research on liposomal prostaglandins for other indications. MANUFACTURING The Company has constructed and validated a multiproduct manufacturing facility at its Princeton site. This facility has been designed to have the capacity to manufacture supplies for the ABLC (R), TLC D-99, and TLC C-53 clinical trial programs and for future products using similar manufacturing processes. The Company also expects to use this facility to manufacture initial commercial supplies of ABLC (R). This facility has been approved by the Medicines Control Agency of the United Kingdom for the manufacture of Abelcet TM for sale in that country. This approval is also acceptable to regulatory authorities in other European Union ("EU") countries. However, approval by the FDA of the manufacture of products in the Princeton facility will be required prior to commercial sales in the United States. In July, 1992, the Company purchased a manufacturing facility in Indianapolis, Indiana, for the commercial production of certain of the Company's products and has begun the renovation of this facility. The 12 refitting of this facility and the purchase, installation and validation of substantial additional processing equipment at an aggregate cost of approximately $11,000,000 to $13,000,000 will be necessary before any production can commence. Approval by the FDA in the United States, or regulators in other countries in which sales are to be made, of the manufacture of products in the Indianapolis facility will be required prior to commercial sales. The Company also has a validated, sterile liposome manufacturing pilot plant at its headquarters. The Company believes that its current facilities and staff are adequate for the manufacture of preclinical and clinical supplies of its products, and for the production of quantities of Abelcet TM to satisfy initial commercial demand, but may not be capable of producing quantities of product sufficient to satisfy demand when ABLC (R) is fully commercialized. The Company has several patented or proprietary processes for the manufacture, handling, loading and drying of liposomes. MARKETING STRATEGY The Company has established an office in London, England with a small sales force which the Company believes is appropriate for the marketing and sale of AbelcetTM in the United Kingdom. The Company may collaborate with third parties in the marketing, sales and distribution of its products in some or all of the European markets. The Company intends to develop its own sales and marketing capabilities in the United States to market ABLC (R) and certain other of the Company's products if and when approved by the FDA. HUMAN RESOURCES At December 31, 1994, the Company had 217 full-time employees, 30 of whom hold Ph.D. degrees and four of whom hold M.D. degrees or foreign equivalent. Of these employees, 159 are engaged in research, development, clinical development and manufacturing activities and 58 in marketing and administration. The Company considers its relations with its employees to be excellent. None of its employees is covered by a collective bargaining agreement. The Company attempts to offer competitive compensation and fringe benefits programs. PRODUCT LIABILITY The testing, manufacturing and marketing of the Company's proposed products will entail risk of product liability claims. Such risks exist with respect to products being tested in human clinical trials, as well as products that may be tested, manufactured or marketed. The Company has obtained insurance of $10,000,000 against the risk of product liability. However, there can be no assurance that such coverage will be adequate to cover claims, that the Company will be able to maintain or increase its current insurance coverage or that adequate insurance will be available on acceptable terms. Although the Company has obtained, and will continue to seek to obtain, indemnification agreements from pharmaceutical companies that may commercialize products based on the Company's technologies, there can be no assurance that current or future corporate sponsors, if any, would be willing fully to indemnify the Company, or would be sufficiently insured. 13 PATENTS AND PROPRIETARY TECHNOLOGY The Company's policy is to protect aggressively its proprietary technology, and the Company considers the protection of such rights to be important to its business. In addition to seeking United States patent protection for many of its inventions, the Company files patent applications in Canada, Japan, Western European countries and additional foreign countries on a selective basis in order to protect the inventions deemed to be important to the development of its foreign business. As of December 31, 1994, the Company had 54 United States patents as well as 372 foreign counterpart patents, and currently has 62 United States patent applications and 734 foreign counterpart patent applications (including designated countries filed under patent treaties) pending. Patents issued and applied for cover inventions including new types of liposomes and their preparation, processes for the therapeutic application of liposomes, lipid purification, lipid based delivery systems and product compositions. The Company has acquired and licensed proprietary technology from universities, research organizations and other companies in return for payments and continuing royalty obligations. The Company has obtained patents in the United States for inventions which may be employed with respect to ABLC (R), TLC D-99 and TLC C-53 and has patent applications pending in Europe and Japan for such inventions. The Company has been awarded patents and has patent applications pending for inventions which may be employed with respect to these and other products in various selected countries, as well. On June 23, 1992, the Company filed suit against Vestar, Inc. ("Vestar"), in the United States District Court for the District of Delaware, alleging that Vestar violated United States Patent number 4,229,360 (the "360 Patent") covering the dehydration of liposomes, which the Company acquired from the Battelle Institute. The Company asserted that Vestar's product AmBisome infringed claims of the 360 Patent. Vestar counterclaimed, alleging that the 360 Patent was invalid and that there was no infringement. In December, 1994, judgment was entered in favor of Vestar, and the Company has determined not to pursue an appeal from that judgment. The Company does not rely on the 360 Patent as the primary means of protection for any of its products currently in development. On May 17, 1993, Vestar filed suit against the Company in the United States District Court for the District of Delaware, seeking a declaratory judgment that one of the Company's patents (U.S. Patent No. 4,880,635, the "635 Patent") was invalid, unenforceable and not infringed by Vestar's AmBisome product. The Company filed a request for reexamination of the 635 Patent in July, 1993, and requested a stay of Vestar's suit pending completion of the reexamination process. The court granted a stay, which remains in force, as the reexamination proceeds. The Company does not intend to rely on the 635 Patent as the primary means of protection for any of its products currently in development. Other public and private institutions, including universities, may have filed applications for, or have been issued, patents with respect to technology potentially useful or necessary to the Company. The scope and validity of such patents, the extent to which the Company may wish or need to acquire licenses under such patents, and the cost or availability of such licenses, are currently unknown. The Company also intends to rely on unpatented trade secrets and proprietary know-how and continuing technological innovation to maintain and develop its commercial position. The Company has entered into confidentiality agreements with its employees, consultants and advisors, and corporate sponsors. 14 GOVERNMENTAL REGULATION Regulation by governmental authorities in the United States and other countries is a significant factor in the production and marketing of the Company's products and in its ongoing research and development activities. In order to test clinically, to produce and to market products for human therapeutic use, mandatory procedures and safety standards established by the FDA and comparable agencies in foreign countries must be followed. The standard process required by the FDA before a pharmaceutical agent may be marketed in the United States includes (i) preclinical tests, (ii) submission to the FDA of an application for an IND which must become effective before human clinical trials may commence, (iii) adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug in its intended application, (iv) submission to the FDA of an NDA with respect to drugs or a Product License Application ("PLA") with respect to biologics, which applications are not automatically accepted by the FDA for consideration, and (v) FDA approval of the NDA or PLA prior to any commercial sale or shipment of the drug or biologic. In addition to obtaining FDA approval for each product, each domestic drug manufacturing establishment must be registered or licensed by the FDA. Domestic manufacturing establishments are subject to inspections by the FDA and by other Federal, state and local agencies and must comply with Good Manufacturing Practice as appropriate for production. The Company has as yet not submitted an NDA in the United States, and no assurance can be given that with respect to the Company's NDA for ABLC (R) that it will be accepted for consideration, that it will be promptly reviewed, that the FDA will find the data submitted adequate or that it will ultimately be approved. Clinical trials are typically conducted in three sequential phases, but the phases may overlap. In Phase I, the initial introduction of the drug to humans, the drug is tested for dosage and tolerance. Phase II involves detailed evaluation of safety and efficacy. Phase III trials consist of larger scale evaluation of safety and efficacy and may require larger patient numbers, depending on the clinical indication for which marketing approval is sought. The process of completing clinical testing and obtaining FDA approval for a new product is likely to take a number of years and require the expenditure of substantial resources. The FDA may grant an unconditional approval of a drug for a particular indication or may grant approval conditioned on further postmarketing testing. Even after initial FDA approval has been obtained, further studies may be required to provide additional data on safety or to gain approval for the use of a product as a treatment for clinical indications other than those for which the product was initially approved. Also, the FDA may require postmarketing testing and surveillance programs to monitor the drug's efficacy and side effects. Results of these postmarketing programs may prevent or limit the further marketing of the products. Sales of pharmaceutical products outside of the United States are subject to regulatory requirements that vary widely from country to country. In the EU, the general trend has been toward coordination of common standards for clinical testing of new drugs, leading to changes in various requirements imposed by each EU country. Generally, the level of regulation in the EU and other foreign jurisdictions is somewhat less comprehensive and burdensome than regulation in the United States, but there are differences and, in some respects, foreign regulations may be more burdensome than FDA requirements. The time required to obtain regulatory approval from the comparable regulatory agencies in each foreign country may be longer or shorter than that required for FDA approval. In addition, the Company is and may be subject to regulation under state and federal law regarding occupational safety, laboratory practices, the use 15 and handling of radioisotopes, environmental protection and hazardous substance control and to other present and possible future local, state, federal and foreign regulation. COMPETITION Competition in the pharmaceutical field generally, and in the liposome and lipid industries in particular, is intense and is based on such factors as product performance, safety, patient compliance, ease of use, price, physician acceptance, marketing, distribution and adaptability to various modes of administration. Technological competition may be based on the development of alternative products and approaches aimed at the treatment, diagnoses or prevention of the same diseases as the Company's products. Competition from other companies will be based on scientific and technological factors, the availability of patent protection, the ability to commercialize technological developments, the ability to obtain government approval for testing, manufacturing and marketing and the economic factors resulting from the use of those products, including their price. There are many companies, both public and private, including well-known pharmaceutical and chemical companies, many of which have greater capital resources than the Company, which are seeking to develop lipid and liposome based products as well as products based on other drug-delivery technologies for therapeutic, diagnostic and vaccine applications. The Company is aware that other companies are developing lipid based or liposomal amphotericin B products. One such company has been selling a liposomal amphotericin B in certain European countries, including the United Kingdom, for approximately four years. Another has received approval during 1994 to market its product, and its licensee is currently marketing such product, in the United Kingdom and in the Republic of Ireland. No approvals have been granted to market any such liposomal amphotericin B products in the United States. Another company is developing a liposomal doxorubicin product for the treatment of Kaposi's Sarcoma and certain types of cancer. An advisory committee of the FDA has voted to recommend that the FDA grant accelerated approval, with certain qualifications, for this product for treatment of Kaposi's sarcoma where other agents have failed. No approvals have yet been granted for this product in the United States. Other groups active in the field include colleges, universities, and public and private research institutions which are becoming more active in seeking patent protection. These institutions have also become increasingly competitive in recruiting personnel from a limited number of scientists and technicians. 16 EXECUTIVE OFFICERS Information with respect to the executive officers of the Company furnished by them as of February 15, 1995 is set forth below:
NAME AGE POSITION - ---------------------------------- --- ----------------------------------- Charles A. Baker 62 Chairman of the Board, President, Chief Executive Officer and Director Edward G. Silverman 41 Executive Vice President and Chief Operating Officer James A. Boyle, M.D., Ph.D. 58 Senior Vice President, Medical and Regulatory Affairs Brooks Boveroux 51 Vice President, Finance, Chief Financial Officer and Treasurer Ralph del Campo 44 Vice President, Manufacturing Operations Carol J. Gillespie 49 Vice President, General Counsel and Secretary David S. Gordon, M.D. 53 Vice President, U.S. Clinical Research Andrew S. Janoff, Ph.D. 46 Vice President, Research George G. Renton 42 Vice President, Human Resources Spiro G. Rombotis 36 Vice President, International Operations Donald D. Yarson 41 Vice President, Sales and Marketing
CHARLES A. BAKER was named Chairman of the Board, President and Chief Executive Officer of the Company in December, 1989. Just prior to joining the Company he was a business development and licensing advisor to several small biotechnology companies. Mr. Baker served in several capacities in senior management at Squibb Corporation (now Bristol-Myers Squibb Company), including the positions of Group Vice President, Squibb Corporation and President, Squibb International. He also held various senior executive positions at Abbott Laboratories and Pfizer Inc. Mr. Baker received an undergraduate degree from Swarthmore College and a J.D. degree from Columbia University. Mr. Baker also serves as a director of Regeneron Pharmaceuticals, Inc., a neuroscience Company. EDWARD G. SILVERMAN was named Executive Vice President and Chief Operating Officer in November, 1993. Since joining the Company in September, 1989, he has held various positions in the Company, including Senior Vice President, Strategic Operations, Vice President, Strategic Planning and Business Development and Executive Director, Marketing and Sales. Prior to joining the Company, Mr. Silverman was Product Director, Gastrointestinal Products at Smith Kline & French Laboratories. From 1976 to 1987, he held a variety of sales, marketing and strategic planning positions at G. D. Searle & Co., Ciba-Geigy and Adria Laboratories. Mr. Silverman holds a B.A. degree in biology from the University of Pennsylvania (1974). JAMES A. (TONY) BOYLE, M.D., Ph.D., joined the Company as Senior Vice President, Medical and Regulatory Affairs in August, 1994. Prior to joining the Company, Dr. Boyle was employed by G.D. Searle and Co. from 1986 to 1994 17 where he held several positions including Vice President, Medical Relations and Vice President, Corporate Medical and Scientific Affairs. Previously, he held senior clinical research positions at Serono Laboratories, Warner Lambert and Pfizer. Dr. Boyle received his M.D. degree (U.K. equivalent) from Glasgow University in 1960 and his Ph.D. degree (U.K. equivalent) in Medicine in 1967. He is Board Certified (U.K. equivalent) in Internal Medicine and Endocrinology. BROOKS BOVEROUX joined the Company as Vice President, Finance, Chief Financial Officer and Treasurer in September, 1993. Prior to joining the Company, Mr. Boveroux was Chief Financial Officer at ImClone Systems, Inc. (1992-1993) and Bio-Technology General Corp. (1990-1992). From 1986 to 1990, he was the Chief Financial Officer of Biogen, Inc. In addition, he has held a variety of management positions at Allied-Signal Inc., PepsiCo, Inc. and Citibank, N.A. Mr. Boveroux holds an A.B. degree from Hamilton College (1965) and an M.B.A. from the Wharton Graduate Division of the University of Pennsylvania (1967). RALPH DEL CAMPO joined the Company in March 1994 as Vice President, Manufacturing Operations. Between 1993 and 1994, he was Senior Vice President, Operations of Melville Biologics, a subsidiary of The New York Blood Center. His prior experience includes positions at Schering Plough Corporation and, from 1977 to 1993, Bristol-Myers Squibb where he had several positions of increasing responsibility including Senior Director, Pharmaceutical Operations and Vice President, Facilities Administration. Mr. del Campo received a B.S. degree in Chemical Engineering from Newark College and an MBA in Pharmaceutical Marketing from Farleigh Dickinson University. CAROL J. GILLESPIE joined the Company as Vice President, General Counsel and Secretary in February, 1995. From 1983 until joining the Company, she held several positions at Syntex Corporation, most recently as its Vice President, Secretary and Associate General Counsel. Prior to joining Syntex, she was associated with MSI Data Corporation, a data processing company, ITT Corporation and Gibson, Dunn & Crutcher, a Los Angeles law firm. Ms. Gillespie received an A.B. degree in Political Science from the University of California, Berkeley (1967), a Master of International Affairs from Columbia University School of International Affairs (1969) and a J.D. degree from the University of California School of Law, Berkeley (1972). DAVID S. GORDON, M.D., joined the Company as Vice President, U.S. Clinical Research in March, 1993. From November, 1990 until joining the Company, Dr. Gordon was director of Biotech Clinical Research-Hematology/Oncology at R.W. Johnson Pharmaceutical Research Institute. He held a variety of professorships at Emory University School of Medicine, including Professor of Medicine Hematology/Oncology. Dr. Gordon also was employed at the Centers for Disease Control, last serving as Director of the Immunology Division. Dr. Gordon received his BSE in Chemical Engineering from Princeton University in 1963 and his M.D. from the University of Colorado School of Medicine in 1967. He also was a Fellow in Medical Oncology at Stanford University. Dr. Gordon is board certified in internal medicine and oncology. ANDREW S. JANOFF, Ph.D., joined the Company in 1981 and has been Vice President, Research since January, 1993. Prior to joining the Company, Dr. Janoff held joint appointments as Research Fellow in Pharmacology at Harvard Medical School and Research Fellow in Anesthesia at the Massachusetts General Hospital. Dr. Janoff holds a B.S. degree in biology from The American University, Washington, D.C. (1971) and M.S. and Ph.D. degrees in biophysics from Michigan State University (1977 and 1980, respectively). GEORGE G. RENTON joined the Company in August, 1994 as Vice President, Human Resources. From 1985 until joining the Company, he was employed by the American Cyanamid Company in several positions, including Director, Personnel, Research and Development of the Lederle Laboratories Division. Earlier, he held several positions at New York University Medical Center. Mr. Renton was awarded a B.S. degree in Education from the State University of New York at 18 Cortland (1975) and an M.S. degree in Industrial/Labor Relations from Cornell University and Baruch College (1985). SPIRO G. ROMBOTIS joined the Company as Vice President, International Operations in May, 1993. Since 1988, Mr. Rombotis held a variety of business and marketing positions at Bristol-Myers Squibb Company, most recently as Vice President of Operations, Pharmaceuticals, Central & Eastern Europe. From 1985 to 1988, he served as Marketing Manager, Europe at Centocor, Inc. Mr. Rombotis received a B.A. from Williams College in 1981 and an M.B.A. from Northwestern University in 1985. DONALD D. YARSON joined the Company as Vice President, Marketing and Sales in March, 1995. From 1993 until 1995, he was President of TriGenix, Inc., a contract sales, marketing and reimbursement organization. He was Director of Marketing for Genzyme Corporation from 1991 to 1993, and before that he was with Genentech Inc. for over four years, serving most recently as Senior Product Manager for Protropin (human growth hormone). He has also held sales and marketing positions with Ciba Geigy. Mr. Yarson received a B.S. degree from Sacred Heart University in 1975. 19 Item 2. Properties - ------------------- The Company leases space in all of one and a portion of two other facilities in Princeton, New Jersey and owns a manufacturing facility in Indiana. The Company currently leases a building of approximately 50,000 square feet that houses its scientific laboratories, manufacturing facilities and certain offices in the Princeton Forrestal Center located near Princeton, New Jersey. During 1994, the Company renegotiated the lease to provide for a longer initial term, together with certain renewal options, a reduced initial lease rate, and a change in structure to a triple net lease in exchange for the Company granting to the lessor a Letter of Credit for $1,000,000. The new lease, with an initial term of twelve years, commenced January 1, 1995, and the Company has options to renew for up to an additional ten years. Lease payments for the year ended December 31, 1994 totaled approximately $828,000. Future lease payments are subject to certain contractual escalations. The Company also leases approximately 23,500 square feet of office space also located in the Princeton Forrestal Center. This lease commenced March 1, 1993, with an initial lease term of ten years. The Company may terminate this lease at the end of the fifth year. Lease payments for this lease for the year ended December 31, 1994 totaled approximately $486,000. In January, 1995, the Company entered into a three year lease for approximately 13,200 square feet of office/warehouse space near its corporate offices. The Company also rents office space in London, England. In July, 1992, the Company purchased a pharmaceutical manufacturing facility of approximately 55,000 square feet located on 26 acres of land located in Indianapolis, Indiana. The Company has begun to refurbish and equip certain portions of the facility. See "Manufacturing" and "Management's Discussion and Analysis of Financial Conditions and Results of Operations--Liquidity and Capital Resources." Item 3. Legal Proceedings - -------------------------- The Company is engaged in various litigation proceedings none of which is believed to be material. Recent intellectual property litigation is described under "Business-Patents and Proprietary Technology". Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ Not applicable. 20 PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder - ------- ------------------------------------------------------------- Matters - ------- (a) Market Information The Company's Common Stock is traded on the Nasdaq National Market System under the symbol LIPO. The following table sets forth for the periods indicated the high and low sale price for the Common Stock:
HIGH LOW ------- ------ 1994 4th Quarter........................... 10.750 6.375 3rd Quarter........................... 8.125 4.750 2nd Quarter........................... 6.500 4.875 1st Quarter........................... 7.750 5.875 1993 4th Quarter........................... 8.875 5.625 3rd Quarter........................... 7.625 5.125 2nd Quarter........................... 9.500 6.500 1st Quarter........................... 12.500 7.500 (b) Holders
At January 31, 1995, there were approximately 1,480 stockholders of record of the Company's Common Stock. (c) Dividends The Company has not paid any cash dividends on its Common Stock since its inception and does not anticipate paying any cash dividends on the Company's Common Stock in the foreseeable future. The declaration and payment of Common Stock dividends, if any, is within the discretion of the Board of Directors and will depend, among other things, upon future earnings, the operating and financial condition of the Company, its capital requirements, and general business conditions. 21 Item 6. Selected Financial Data - -------------------------------- The following table sets forth consolidated financial data with respect to the Company for each of the five years in the period ending December 31, 1994. The information set forth below should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes included elsewhere herein.
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1994 1993 1992 1991 1990 ---------- ---------- --------- --------- --------- (in thousands, except per share figures) CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Collaborative research and development revenues................................... $ 5,831 $ 4,877 $ 5,767 $ 5,938 $ 3,734 Licensing and other fees.................... 50 541 312 319 2,668 Interest and investment income, net......... 4,559 7,624 4,810 2,575 669 --------- -------- -------- -------- -------- Total revenues............................. 10,440 13,042 10,889 8,832 7,071 --------- -------- -------- -------- -------- Research and development expenses........... 31,713 25,072 15,000 9,326 8,598 General and administrative expenses......... 12,072 10,193 5,488 3,586 3,164 Interest expense............................ 308 254 76 6 14 Other expenses.............................. -- -- -- -- 300 --------- -------- -------- -------- -------- Total expenses............................. 44,093 35,519 20,564 12,918 12,076 --------- -------- -------- -------- -------- Net loss.................................... (33,653) (22,477) (9,675) (4,086) (5,005) Preferred Stock dividends................... (5,348) (5,348) -- -- -- --------- -------- -------- -------- -------- Net loss applicable to Common Stock......... $ (39,001) $(27,825) $ (9,675) $ (4,086) $ (5,005) ========= ======== ======== ======== ======== Net loss per share applicable to Common Stock...................................... $(1.64) $(1.18) $(.43) $(.22) $(.35) ========= ======== ======== ======== ======== Weighted average number of common shares outstanding......................... 23,850 23,536 22,384 18,221 14,226 ========= ======== ======== ======== ======== YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1994 1993 1992 1991 1990 --------- -------- -------- -------- -------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and marketable securities(1)........... $ 72,157 $119,743 $ 76,399 $ 45,678 $ 7,668 Working capital............................. 51,746 102,139 71,910 43,604 5,306 Total assets................................ 93,196 139,632 92,756 50,803 11,007 Total long-term liabilities................. 5,917 7,696 2,986 607 658 Accumulated deficit......................... (108,859) (75,206) (52,729) (43,054) (38,968) Total stockholders' equity(2)............... $ 78,353 $122,347 $ 83,200 $ 46,861 $ 7,435
___________ (1) Includes restricted cash of $4,880 and $4,748 in 1994 and 1993, respectively. See Note 1 of Notes to Consolidated Financial Statements. (2) In 1993, the Company adopted the provisions of Financial Accounting Standard 115 "Accounting for Certain Investments in Debt and Equity Securities." The effect of this adoption was to increase Total stockholders' equity by $650 in 1993 and reduce Total stockholders' equity by $5,033 in 1994. 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - ------------- OVERVIEW The Company is a leading biotechnology company engaged in the discovery, development and, recently, the commercialization of proprietary lipid and liposome-based pharmaceuticals for the treatment, prevention and diagnosis of inadequately treated, life-threatening illnesses. The Company is currently launching its first product, amphotericin B lipid complex (ABLC(R) or, in Europe, AbelcetTM), which has been approved for marketing for certain indications in the United Kingdom and is the subject of marketing application filings in eighteen other countries. The Company expects to file an NDA for ABLC(R) in the United States during 1995. In addition to ABLC(R)/AbelcetTM, the Company's other lead products are TLC D-99 and TLC C-53. TLC D-99, liposomal doxorubicin, is being developed in conjunction with Pfizer primarily as a first line treatment of metastatic breast cancer, and is undergoing Phase III clinical testing in the United States. The Company has completed a Phase II clinical trial for TLC C-53 for the treatment of ARDS and is preparing a protocol for a pivotal clinical trial of TLC C-53, liposomal prostaglandin E1, for ARDS. In January, 1995, the Company commenced a Phase II clinical trial of TLC C-53 for the treatment of AMI, or heart attack. The Company and Schering AG entered into a collaborative research and development agreement with respect to TLC I-16, a non-ionic contrast agent for use in connection with CT scanning of the liver. TLC I-16 is currently in preclinical development. The Company also has a continuing discovery research program which concentrates primarily on the treatment of cancer and inflammatory conditions. RESULTS OF OPERATIONS Revenues Total revenues for the year ended December 31, 1994 were $10,440,000, a decrease of $2,602,000 or 20.0% as compared to the year ended December 31, 1993. Revenues in 1993 were $13,042,000, an increase of $2,153,000 or 19.8% compared to the 1992 level. The primary components of revenues for the Company are collaborative research and development activities, interest and investment income, and licensing and other fees. These components can increase or decrease significantly based on the number and amount of research collaborations, including the achievement of developmental milestones, the initiation of new licensing agreements and, in the case of interest and investment income, the level of cash balances available for investment and the rate of interest earned on such investments. Collaborative research and development revenues were $5,831,000 for 1994, which was $954,000 or 19.6% higher than 1993 revenues. Collaborative research and development revenues were $4,877,000 for 1993, which was $890,000 or 15.4% lower than 1992. The Company earned substantially all of its collaborative research and development revenues from two corporate sponsors in 1994 and 1993 and three sponsors in 1992. In January, 1993, the Company reacquired the worldwide rights to ABLC(R) from Bristol-Myers Squibb ("BMS"), a former corporate sponsor. The Company assumed the responsibilities and funding for clinical development, manufacturing and marketing of ABLC(R). The financial impact of the reacquisition was the absence of research and development reimbursements from BMS in 1993 and 1994. Through January, 1995, the Company filed marketing applications for ABLC(R)/AbelcetTM in eighteen countries and in June, 1994, began Phase III clinical trials in the United States for the drug. During February, 1995, the Company received approval to market AbelcetTM in the United Kingdom for certain indications. During 1992, the Company completed work under a research agreement related to a certain diagnostic product with Schering AG; additional work under an amended research agreement with Schering AG began in the third quarter of 1993 and continued through 1994. 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - ------------- Licensing and other fees were $50,000, $541,000 and $312,000 for 1994, 1993 and 1992, respectively. The change in this category from 1992 to 1994 was directly related to an agreement with Wyeth-Ayerst for TLC A-60, a liposomal vaccine adjuvant which required payments as follows: $250,000 in 1992, $500,000 in 1993 with no payment being scheduled in 1994. Wyeth-Ayerst recently advised the Company that it is no longer pursuing development of TLC A-60 and that it intends to return all rights to the Company. Interest and investment income for the years ended December 31, 1994, 1993, and 1992 was $4,559,000, $7,624,000, and $4,810,000, respectively. Interest and investment income in 1994 decreased by $3,065,000 or 40.2% from 1993. Interest and investment income in 1993 was $2,814,000 or 58.5% greater than that in 1992. During the first quarter of each of 1993 and 1992 the Company raised capital through the sale of equity securities. Net proceeds to the Company from these sales were $65,735,000 and $44,603,000, respectively. No significant amounts of capital were raised during 1994. Fluctuations in interest and investment income are primarily due to the significant changes in the level of cash balances the Company has available for investment as a result of these financings. The Company expects that interest and investment income in 1995 will be substantially less than that reported in 1994 due to the anticipated lower level of cash and securities in its portfolio. Expenses Total expenses for 1994 of $44,093,000 increased $8,574,000 or 24.1% compared to 1993. Total expenses of $35,519,000 for 1993 increased $14,955,000 or 72.7% compared to 1992. The increase in expenses for each year reflects the greater funding required to support the clinical study programs of its lead proprietary products as these products progress through late-stage trials, and the expansion of the Company's research and development efforts. Research and development expenses accounted for 71.0% of the expense increase from 1992 to 1994, while general and administrative and interest expenses accounted for the remainder. At year-end 1992, the Company's efforts were focused on research and pharmaceutical development using a small organization to support early stage clinical trial activities. During 1993, the Company significantly expanded its capability to design and monitor clinical trials, both in the U.S. and internationally and also added internal capabilities in biostatistics and regulatory affairs. During 1994, the Company continued to strengthen these activities and developed an internal manufacturing organization capable of producing clinical and commercial material and began to establish an international sales and marketing organization. Research and development expenses of $31,713,000 for 1994 increased $6,641,000 or 26.5% over 1993. The primary components of this increase were the costs related to ABLC(R)/AbelcetTM, TLC C-53 and TLC D-99, reflecting higher expenditures associated with the Company's products progressing to late stages of development; increased staffing levels to support the new manufacturing facility located in Princeton, which began operations in early 1994; and the expansion of the Company's medical, regulatory, and biostatistical departments to develop and conduct increased clinical trial activity. As in prior years, costs associated with the development of TLC D-99 were reimbursed by Pfizer under the terms of a licensing agreement, signed in 1990. In February, 1994, the Company announced that it had suspended further development of Maitec(R), its liposomal gentamicin product, in order to focus its resources on its other products. 24 Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - ------------- Research and development expenses of $25,072,000 for 1993 increased $10,072,000 or 67.1% over 1992. The significant part of the increase was related to assuming the on-going development costs of ABLC(R) that were previously incurred by BMS. All rights to ABLC(R) were reacquired from BMS in January 1993. The 1993 increase also included the expansion of preclinical studies for TLC C- 53 and clinical study programs of Maitec(R), TLC C-53, and TLC D-99. The Company also increased research and development staff including medical, regulatory, biostatistical, manufacturing and scientific personnel to support the preclinical and clinical study programs. General and administrative expenses in 1994 were $12,072,000, an increase of $1,879,000 or 18.4% over 1993. The primary component of the increase was costs associated with the start up of the international sales and marketing operations in anticipation of launching the Company's first product, amphotericin B lipid complex, using the trademark AbelcetTM. By year-end 1994, the Company had filed applications to market AbelcetTM in seventeen countries, and approval to market in the United Kingdom was received in February, 1995. General and administrative expenses in 1993 were $10,193,000, an increase of $4,705,000 or 85.7% over 1992. The main reason for the increase was the cost associated with litigation brought by the Company for patent infringement. The court found in favor of the defendant, and the Company has decided not to appeal. The balance of the increase was due to the expansion of various administrative functions consistent with the growth of the Company. The Company expects both its research and development expenses and its general and administrative expenses to continue to increase as it pursues the clinical development of its products, launches AbelcetTM in the United Kingdom and prepares for future potential marketing approvals in other European countries. Interest expense for 1994 was $308,000 compared to $254,000 for 1993. The increase of $54,000 in interest expense was primarily due to a sale-leaseback agreement that funded machinery and construction costs within the Princeton manufacturing facility. This capital lease arrangement was initiated in 1993 and completed in early 1994. The increase in 1993 versus 1992 of $178,000 was due to the 1992 acquisition of a 55,000 square foot manufacturing facility in Indianapolis, Indiana, which was partially funded by a mortgage-backed note payable. Preferred Stock Dividends In January 1993, the Company completed the issuance of 2,760,000 Depositary Shares representing 276,000 shares of Series A Cumulative Convertible Exchangeable Preferred Stock with a cumulative dividend of 7.75%. The Company has declared and paid dividends of $5,348,000 on such Preferred Stock annually during 1993 and 1994. These dividends are included as part of the Company's net loss applicable to Common Stock and net loss per share of Common Stock. Net Loss, Net Loss Applicable to Common Stock and Net Loss Per Share of Common Stock The net loss of $33,653,000 for 1994 increased by $11,176,000 or 49.7% compared to 1993. This increase in net loss was due to the increase in total expenses of $8,574,000, in conjunction with a decrease in total revenues of $2,602,000. The net loss applicable to Common Stock was $39,001,000 in 1994 and $27,825,000 in 1993 as a result of the operational factors discussed above and the declaration of $5,348,000 of Preferred Stock dividends in each year. The net loss per common share increased by $.46 per share to $1.64 per share 25 for 1994. The total loss per share of $1.64 comprises $.23 for Preferred Stock dividends and the remainder, $1.41, for the current year net loss. The net loss of $22,477,000 for 1993 increased by $12,802,000 or 132% compared to 1992. This increase in net loss was due to the increase in total expenses of $14,955,000, partially offset by an increase in total revenues of $2,153,000. The net loss applicable to Common Stock was $27,825,000 in 1993 compared to $9,675,000 in 1992. The increase was due to the operational factors discussed above and inclusion in 1993 of $5,348,000 in Preferred Stock dividends. The 1993 net loss per common share increased by $.75 per share to $1.18 per share. The increase is attributable to the $5,348,000 of Preferred Stock dividends, or $.23 per share, and the balance is due to the increase in net loss of $.52 per share. Liquidity and Capital Resources ------------------------------- The Company had $72,157,000 in cash reserves as of December 31, 1994. The cash reserves include cash and cash equivalents of $2,369,000, short-term investments of $55,487,000, long-term investments of $9,421,000 and restricted cash of $4,880,000. The cash reserves decreased $47,586,000 from 1993 due to the use of funds for operations, capital acquisitions, Preferred Stock dividend payments and a current market value adjustment to investments to comply with the Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities. The cumulative effect at December 31, 1994 of SFAS No. 115 was a net unrealized loss of $5,033,000. In connection with certain financing arrangements, the Company is required to maintain minimum cash balances, of which the largest requirement is $20,000,000. The Company invests its excess cash in a diversified portfolio of high-grade marketable and United States Government-backed securities. During 1994, cash used by operations increased to $32,407,000 as compared to $18,948,000 in 1993. The 1994 change in cash used was primarily due to the increase in net loss versus 1993 combined with the increase in other current assets and the reduction in accounts payable. This was partially offset by increases in depreciation and amortization, along with accrued expenses. Funding required for operating activities during 1994 was derived from existing cash balances and the sales of investments as well as from corporate sponsors, interest income, and the exercise of stock options. Plant acquisitions decreased in 1994 compared to 1993, reflecting the completion of the expansion of the clinical research and manufacturing facilities begun in 1993. The Company expects to make renovations costing between approximately $11,000,000 to $13,000,000 at the Indianapolis facility. At December 31, 1994, the Company had approximately $101,412,000 of operating loss carryforwards, $2,860,000 of research and development credit carryforwards and $45,000 of investment tax credit carryforwards. These carryforwards expire in the years 1996 through 2009. The timing and manner in which these losses are used may be limited as a result of certain ownership changes that occurred pursuant to Internal Revenue Service regulations under Section 382. The Company expects to finance its operations from, among other things, the proceeds received from payments under research and development agreements, interest earned on investments, liquidation of certain investments and product sales. Funds may also be provided to the Company by leasing arrangements for capital expenditures and from the licensing of its products. The Company expects to fund Preferred Stock dividends from existing cash reserves. The Company believes that its available cash and marketable securities, revenues from research and development contracts and interest income will be sufficient to meet its expected operating and capital cash flow requirements for the intermediate term. 26 Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- Reference is made to the Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flow, Notes to Consolidated Financial Statements, and Independent Accountants Report appearing in Item l4(a) of this Form l0-K. Item 9. Disagreements on Accounting and Financial Disclosure - ------------------------------------------------------------- None. 27 PART III -------- Item l0. Directors and Executive Officers of the Registrant - ------------------------------------------------------------ Information required under this Item relating to executive officers of the Company is included in a separate item captioned "Executive Officers" contained in Part I of this report. Information required under this Item relating to the directors of the Company will be contained in the Company's Proxy Statement for the l995 Annual Meeting, the relevant portions of which are incorporated herein by reference. Item ll. Executive Compensation - -------------------------------- Information required under this Item will be contained in the Company's Proxy Statement for the l995 Annual Meeting, the relevant portions of which are incorporated herein by reference. Item l2. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------ Information required under this Item will be contained in the Company's Proxy Statement for the l995 Annual Meeting, the relevant portions of which are incorporated herein by reference. Item l3. Certain Relationships and Related Transactions - -------------------------------------------------------- Information required under this Item will be contained in the Company's Proxy Statement for the l995 Annual Meeting, the relevant portions of which are incorporated herein by reference. 28 PART IV ------- Item l4. Exhibits, Financial Statement Schedules and Reports on Form 8-K - ------------------------------------------------------------------------- (a) l. Financial Statements -------------------- Consolidated financial statements listed in the accompanying index are filed herewith. 2. Exhibits -------- See Exhibit Index included elsewhere in this Report. (b) Reports on Form 8-K ------------------- No reports on Form 8-K have been filed during the last quarter of the period covered by this report. 29 Index to Financial Statements ----------------------------- (Item l4(a)1 [and 14(a)2)]
Page ---- Consolidated Financial Statements - --------------------------------- Report of independent accountants........................... 31 Consolidated balance sheets at December 3l, l994 and l993... 32 Consolidated statements of operations for each of the three years in the period ended December 3l, l994......... 33 Consolidated statements of stockholders' equity for each of the three years in the period ended December 3l, l994.. 34 Consolidated statements of cash flows for each of the three years in the period ended December 3l, l994......... 35 Notes to consolidated financial statements.................. 36
30 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of The Liposome Company, Inc.: We have audited the consolidated balance sheets of The Liposome Company, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Liposome Company, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in 1993 the Company changed its method of accounting for certain investments in debt and equity securities. Princeton, New Jersey February 2, 1995 Coopers & Lybrand L.L.P. 31 THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands except share data)
DECEMBER 31 --------------------- 1994 1993 ---------- --------- ASSETS Current assets: Cash and cash equivalents...................................... $ 2,369 $ 4,670 Short-term investments......................................... 55,487 105,531 Accounts receivable............................................ 1,618 635 Inventories.................................................... 748 214 Prepaid expenses............................................... 419 657 Other current assets........................................... 31 21 --------- -------- Total current assets......................................... 60,672 111,728 Long-term investments............................................. 9,421 4,794 Plant and equipment, net.......................................... 17,686 17,767 Restricted cash................................................... 4,880 4,748 Intangibles, net.................................................. 537 595 --------- -------- Total assets................................................. $ 93,196 $139,632 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................... $ 1,112 $ 3,197 Accrued expenses and other current liabilities................. 4,698 3,131 Current obligations under capital leases....................... 1,476 1,444 Current obligations under note payable......................... 303 303 Preferred Stock dividends payable.............................. 1,337 1,337 Unearned contract income and other fees........................ -- 177 --------- -------- Total current liabilities.................................... 8,926 9,589 Long-term obligations under capital leases........................ 4,126 5,602 Long-term obligations under note payable.......................... 1,791 2,094 --------- -------- Total liabilities............................................ 14,843 17,285 --------- -------- Stockholders' equity:............................................. Capital stock: Preferred Stock, par value $.01; 2,400,000 authorized; 276,000 shares of Series A Cumulative Convertible Exchangeable Preferred Stock outstanding (liquidation preference of $69,000,000)................................ 3 3 Common Stock, par value $.01; 60,000,000 shares authorized; 23,982,849 and 23,705,434 shares issued and outstanding... 240 237 Additional paid-in capital........................................ 192,003 196,655 Net unrealized investment (loss)/gain............................. (5,033) 650 Foreign currency translation adjustment........................... (1) 8 Accumulated deficit............................................... (108,859) (75,206) --------- -------- Total stockholders' equity.............................. 78,353 122,347 --------- -------- Total liabilities and stockholders' equity.............. $ 93,196 $139,632 ========= ========
See accompanying notes. 32 THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share figures)
YEAR ENDED DECEMBER 31, ------------------------------ 1994 1993 1992 -------- -------- ------- Collaborative research and development revenues....... $ 5,831 $ 4,877 $ 5,767 Licensing and other fees.............................. 50 541 312 Interest and investment income, net................... 4,559 7,624 4,810 -------- -------- ------- Total revenues................................... 10,440 13,042 10,889 -------- -------- ------- Research and development expenses..................... 31,713 25,072 15,000 General and administrative expenses................... 12,072 10,193 5,488 Interest expenses..................................... 308 254 76 -------- -------- ------- Total expenses................................... 44,093 35,519 20,564 -------- -------- ------- Net loss......................................... (33,653) (22,477) (9,675) Preferred Stock dividends............................. (5,348) (5,348) -- -------- -------- ------- Net loss applicable to Common Stock................... $(39,001) $(27,825) $(9,675) ========= ========= ======== Net loss per share applicable to Common Stock......... $(1.64) $(1.18) $(.43) ========= ========= ======== Weighted average number of common shares outstanding.. 23,850 23,536 22,384 ========= ========= ========
See accompanying notes. 33 THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands except share figures)
Shares Additional Preferred Common Par Paid-in Accumulated Stockholders' Stock Stock Value Capital Other Deficit Equity --------- ---------- ----- --------- ------------ -------------- --------- Balance, December 3l, 1991........ -- 19,666,023 $197 $ 89,729 $ (11) $ (43,054) $ 46,861 Issuance of stock: For cash......................... -- 3,450,000 35 44,568 -- -- 44,603 To 401K plan..................... -- 6,075 -- 72 -- -- 72 For product rights............... -- 46,582 -- 600 -- -- 600 Exercise of stock options......... -- 309,730 3 718 18 -- 739 Net loss for 1992................. -- -- -- -- -- (9,675) (9,675) --------- ---------- ---- -------- ------- --------- -------- Balance, December 3l, 1992........ -- 23,478,410 $235 $135,687 $ 7 $ (52,729) $ 83,200 ========= ========== ==== ======== ======= ========= ======== Issuance of stock: For cash......................... 276,000 -- 3 65,732 -- -- 65,735 To 401K plan..................... -- 24,390 -- 182 -- -- 182 Exercise of stock options......... -- 202,634 2 402 -- -- 404 Dividends on Preferred Stock...... -- -- -- (5,348) -- -- (5,348) Net unrealized investment gain.... -- -- -- -- 650 -- 650 Foreign currency translation adjustment....................... -- -- -- -- 1 -- 1 Net loss for 1993................. -- -- -- -- -- (22,477) (22,477) --------- ---------- ---- -------- ------- --------- -------- Balance, December 31, 1993........ 276,000 23,705,434 $240 $196,655 $ 658 $ (75,206) $122,347 ========= ========== ==== ======== ======= ========= ======== Issuance of stock: To 401K plan..................... -- 31,254 -- 196 -- -- 196 Exercise of stock options......... -- 246,161 3 500 -- -- 503 Dividends on Preferred Stock...... -- -- -- (5,348) -- -- (5,348) Net unrealized investment (loss).. -- -- -- -- (5,683) -- (5,683) Foreign currency translation adjustment....................... -- -- -- -- (9) -- (9) Net loss for 1994................. -- -- -- -- -- (33,653) (33,653) --------- ---------- ---- -------- ------- --------- -------- Balance, December 31, 1994........ 276,000 23,982,849 $243 $192,003 $(5,034) $(108,859) $ 78,353 ========= ========== ==== ======== ======= ========= ========
34 THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, ----------------------------------------------- 1994 1993 1992 ------------------------ ---------- --------- Cash flows from operating activities: Net loss............................................. $(33,653) $ (22,477) $ (9,675) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization....................... 3,145 1,622 798 Issuance of stock for product rights................ -- -- 600 Other............................................... 196 222 166 Changes in assets and liabilities: Accounts receivable............................... (983) (542) 20 Inventory......................................... (534) (170) 9 Prepaid expenses.................................. 238 455 (796) Other current assets.............................. (11) 341 (1,096) Accounts payable.................................. (2,195) 880 1,452 Accrued expenses and other current liabilities....................... 1,567 1,423 613 Unearned contract income and other fees........... (177) (702) (631) -------- --------- -------- Net cash used by operating activities................ (32,407) (18,948) (8,540) -------- --------- -------- Cash flows from investing activities: Purchases of short and long-term investments......... (38,284) (205,982) (97,361) Sales of short and long-term investments............. 78,019 170,057 69,029 Restricted cash...................................... (132) (4,748) -- Purchases of property, plant and equipment........... (2,896) (7,651) (9,817) Payments on employee receivable notes................ -- 10 20 -------- --------- -------- Net cash provided/(used) by investing activities.......................................... 36,707 (48,314) (38,129) -------- --------- -------- Cash flows from financing activities: Net proceeds from issuance of stock.................. -- 65,735 44,603 Exercises of stock options........................... 503 404 721 Stockholder receivables.............................. -- -- 18 Receipt of proceeds from note payable................ -- -- 2,800 Principal payments under note payable................ (303) (302) (101) Receipt of proceeds from capital lease obligations... -- 7,496 -- Principal payments under capital lease obligations... (1,444) (450) (18) Preferred Stock dividend payments.................... (5,348) (4,011) -- -------- --------- -------- Net cash (used)/provided by financing activities.......................................... (6,592) 68,872 48,023 -------- --------- -------- Effects of exchange rate changes on cash.............. (9) 1 -- -------- --------- -------- Net (decrease)/increase in cash and cash equivalents.. (2,301) 1,611 1,354 Cash and cash equivalents at beginning of year........ 4,670 3,059 1,705 -------- --------- -------- Cash and cash equivalents at end of year.............. $ 2,369 $ 4,670 $ 3,059 ======== ========= ========
See accompanying notes. 35 THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BUSINESS: The Liposome Company, Inc. (the "Company") is a leading biotechnology company engaged in the discovery, development and, recently, the commercialization of proprietary lipid and liposome-based pharmaceuticals for the treatment, prevention and diagnosis of inadequately treated, life-threatening illnesses. The Company is currently launching its first product, amphotericin B lipid complex (ABLC(R) or, in Europe, AbelcetTM), which has been approved for marketing for certain indications in the United Kingdom and is the subject of marketing application filings in eighteen other countries. The Company expects to file an NDA for ABLC(R) in the United States during 1995. In addition to ABLC(R)/AbelcetTM, the Company's other lead products are TLC D-99 and TLC C-53. TLC D-99, liposomal doxorubicin, is being developed in conjunction with a corporate sponsor primarily as a first line treatment of metastatic breast cancer. TLC C-53, liposomal prostaglandin E1, is being developed for the treatment of acute respiratory distress syndrome and acute myocardial infarction. The Company is also developing a contrast agent for CT scanning and has a continuing discovery research program which concentrates primarily on the treatment of cancer and inflammatory conditions. CONSOLIDATED FINANCIAL STATEMENTS: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances are eliminated in consolidation. REVENUE RECOGNITION AND UNEARNED CONTRACT INCOME: Payments for collaborative research and development are generally received in advance and are recognized as revenue, ratably, as the research and development is performed. Licensing fees, royalty and hurdle payments are recognized in the period earned. The Company has entered into various collaborative research and development contracts. The Company earned substantially all of its research and development revenues from two corporate sponsors in 1994 and 1993, and three in 1992. Corporate sponsors who contributed 10% or more of the Company's total revenues, pursuant to collaborative agreements and licensing and other fees as reported in the statements of operations, in any year were as follows:
CORPORATE SPONSORS 1994 1993 1992 - -------------------- ---------- ---------- ---------- A................... $ -- $ -- $ 600,000 B................... 4,694,000 4,497,000 4,579,000 C................... 1,116,000 333,000 500,000
RESEARCH AND DEVELOPMENT EXPENSES: The research and development expenses of the Company, which are expensed as incurred, include those efforts related to collaborative research and development agreements, development of the Company's proprietary products and general research. The expenses include, but are not limited to, medical, biostatistical, regulatory, manufacturing and scientific support costs. 36 THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DEPRECIATION AND AMORTIZATION: Building and building improvements, furniture and fixtures, automobiles, and machinery and equipment are depreciated by the straight-line method over their estimated useful lives ranging from three to twenty years. Leasehold improvements and machinery and equipment under capital leases are amortized by the straight-line method over the lesser of their estimated useful lives or the terms of the related leases. Purchased patents are amortized by the straight- line method over their life as determined by the country of issuance. The Company reviews the realizability of the patents on a quarterly basis. CASH EQUIVALENTS: The Company considers all highly liquid investments with maturities of three months or less as cash equivalents. INVESTMENTS: Short-term investments represent marketable securities available for current operations, all of which have been classified as available for sale, while long- term investments represent marketable securities available for expected capital acquisitions. These investments, which are all investment grade, are stated at market value of the portfolio. On December 31, 1993, the Company adopted the provisions of the Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities. This Statement requires certain investments in debt and equity securities to be reported at current market value. Prior to 1993 investments were carried at the lower of cost or market. For the years ended December 31, 1994 and 1993, investment income includes gross realized gains of $150,000 and $765,000, respectively. At December 31, 1994 and 1993, investments included gross unrealized gains of $7,000 and $845,000 and losses of $5,040,000 and $195,000, respectively. The fair values of debt securities maturing within one year and after one year but less than 5 years, amounted to $5,954,000 and $57,148,000, respectively. RESTRICTED CASH: The Company has entered into certain financing arrangements that require the issuance of letters of credit that are partially secured by certain securities. The aggregate amount of these securities are segregated and identified as restricted cash. The Company is also required to maintain minimum cash balances in connection with these financings. NET LOSS PER SHARE APPLICABLE TO COMMON STOCK: Net loss per share applicable to Common Stock is computed based on the weighted average of the Common Stock shares outstanding. Common Stock equivalents are not included in the computation of weighted average shares outstanding since the effect would be anti-dilutive. RECLASSIFICATION: Certain reclassifications have been made to the prior year financial statement amounts to conform with the presentation in the current year financial statements. 37 THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. STOCKHOLDERS' EQUITY: PREFERRED STOCK: In January 1993, the Company completed an offering of 2,760,000 Depositary Shares, each of which represents one-tenth of a share of Series A Cumulative Convertible Exchangeable Preferred Stock carrying a 7 3/4% dividend rate. The liquidation value is $25.00 per Depositary Share, plus accrued and unpaid dividends. Each Depositary Share is convertible at any time into shares of the Company Common Stock at a conversion price of $12.85 per share of Common Stock, which is equivalent to a conversion rate of 1.9455 shares of Common Stock for each Depositary Share. 5,369,580 shares of Common Stock are reserved for such conversion. The proceeds to the Company were $66,240,000 net of underwriter fees. Additional stock issuance costs, including professional, registration, filing and printing fees of approximately $505,000 were incurred in connection with this offering. PREFERRED STOCK DIVIDENDS: During 1994 and 1993, the Board of Directors of the Company declared the quarterly cash dividends on the Series A Cumulative Convertible Exchangeable Preferred Stock at a prorated dividend rate of $.484375 per Depositary Share. Dividend payments in 1994 and 1993 totaled $5,348,000 and $4,011,000, respectively. An additional dividend payment of $1,337,000 was paid on January 16, 1995 to stockholders of record on January 2, 1995. COMMON STOCK: In March 1992, the Company completed the sale of 3,450,000 shares of Common Stock. Proceeds from the stock sale were $44,954,000 net of underwriter fees. Additional stock issuance costs, including professional, registration, filing and printing fees of approximately $351,000 were incurred in connection with the sale. 3. STOCK OPTION PLANS: The Company has several stock option plans available for the issuance of incentive stock options and non-qualified stock options ("NQSO"). These options are designed to attract and retain key employees, directors and consultants. As of December 31, 1994, the Company had outstanding grants of 4,226,105 shares and 1,455,808 shares available for grants, totaling 5,671,913 shares of Common Stock reserved for stock option grants. Options are granted at fair market value. These options generally become exercisable in ratable installments over a five-year period. Options under the 1991 Non-Employee Directors NQSO Plan ("Directors' Plan") are automatically granted upon appointment to the Board of Directors and annually on July 1 of each year to such non-employee Directors. Such initial grants vest over a five year period and subsequent annual grants vest in one year. Activity under all stock option plans for 1992, 1993 and 1994 is summarized as follows: 38 THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NUMBER OF SHARES PRICE RANGE PER SHARE ------------- ------------------------------- Outstanding December 31, 1991................... 2,737,080 Granted......................................... 705,275 $ 7.875 - $ 22.75 Exercised....................................... (309,730) .85 - 9.75 Forfeited....................................... (45,535) 1.25 - 22.75 --------- Outstanding December 31, 1992................... 3,087,090 Granted......................................... 1,243,470 5.75 - 11.75 Exercised....................................... (202,634) .75 - 3.625 Forfeited....................................... (261,339) 1.0625 - 16.50 --------- Outstanding December 31, 1993................... 3,866,587 Granted......................................... 1,042,320 5.75 - 10.1875 Exercised....................................... (246,161) 2.036 - 8.00 Forfeited....................................... (436,641) .85 - 21.25 --------- Outstanding at December 31, 1994................ 4,226,105 ========= Exercisable at December 31, 1994................ 2,141,990 $ .85 - $ 21.25 =========
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following: 1994 1993 ------- ----------- Building and building improvements........... $ 2,778,000 $ 2,771,000 Land and land improvements................... 423,000 423,000 Automobiles.................................. 12,000 12,000 Furniture and fixtures....................... 1,574,000 814,000 Machinery and equipment...................... 9,070,000 8,172,000 Leasehold improvements and other............. 4,597,000 3,870,000 Construction in process...................... 2,269,000 1,682,000 Machinery and equipment under capital lease.. 7,496,000 7,496,000 ---------- ----------- Total property, plant and equipment.......... 28,219,000 25,240,000 Less: Accumulated depreciation and amortization............................... (10,533,000) (7,473,000) ------------ ----------- Net property, plant and equipment............ $17,686,000 $17,767,000 ----------- -----------
5. INVENTORIES: The components of inventory are as follows:
1994 1993 -------- -------- Raw Materials.. $611,000 $214,000 Supplies....... 137,000 -- -- -------- -------- $748,000 $214,000 ======== ========
6. COMMITMENTS AND CONTINGENCIES: Operating Leases: Total rental expense for property, plant and equipment was approximately $1,618,000, $1,139,000, and $739,000 for 1994, 1993 and 1992, respectively. 39 THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company's future minimum lease payments under noncancelable operating leases at December 31, 1994 are as follows: 1995................. $1,326,000 1996................. 1,289,000 1997................. 1,252,000 1998................. 753,000 1999................. 568,000 2000 and thereafter.. 4,596,000 ---------- Total........... $9,784,000 ==========
CAPITAL LEASES: On July 1, 1993 the Company entered into an agreement which provided for equipment lease financing. As of December 31, 1994, the Company had received a total of $7,496,000 under the lease financing agreement in sale-leaseback refinancings outstanding against this arrangement. The sale-leaseback refinancings are secured by $3,748,000 in standby letters of credit provided under a letter of credit agreement which is secured by AAA rated securities owned by the Company. The Company is required to maintain a minimum balance of $20,000,000 in cash and marketable securities, including those securities securing the letters of credit in connection with the lease financing. The following is a schedule by year of future minimum payments under capital leases together with the present value of the minimum lease payments and the capital lease portion of certain classes of property as of December 31, 1994: 1995................................... $ 1,584,000 1996................................... 1,584,000 1997................................... 1,584,000 1998................................... 1,084,000 1999................................... -- 2000 and thereafter............... -- ----------- Total minimum lease payments................ 5,836,000 Less: Amount representing interest.......... (234,000) ----------- Present value of minimum lease payments..... $ 5,602,000 ===========
CLASSES OF PROPERTY: Machinery................................... $ 4,205,000 Leasehold improvements...................... 3,291,000 ----------- Total machinery and leasehold improvements.. 7,496,000 Less: Accumulated amortization.............. (2,058,000) ----------- Net machinery and leasehold improvements.... $ 5,438,000 ===========
7. LONG-TERM DEBT: On July 24, 1992, The Liposome Manufacturing Company, Inc., a wholly-owned subsidiary of The Liposome Company, Inc., entered into a mortgage-backed note to partially fund the purchase of a pharmaceutical manufacturing facility in Indianapolis, Indiana. The principal will be paid in equal installments of $25,225 each month plus accrued interest. The note payments will be completed on November 1, 2001. The interest rate, based on the prime rate plus 1/2%, has a floor and ceiling of 6% and 10%, respectively. The note is guaranteed by The Liposome Company, Inc. and the mortgage lending institution is holding a $1,000,000 AAA rated security owned by The Liposome Company, Inc. as collateral for the note. The Company is required to maintain a minimum balance of $10,000,000 in cash and marketable securities, including those securities securing the letter of credit in connection with the financing. 40 THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Liposome Manufacturing Company's principal repayment obligations as of December 31, 1994 are as follows: 1995................................... $303,000 1996................................... 303,000 1997................................... 303,000 1998................................... 303,000 1999................................... 303,000 2000 and thereafter.................... 579,000 -------- Subtotal............................... 2,094,000 Less: Current portion.................. (303,000) -------- Total.................................. $1,791,000 ==========
8. SUPPLEMENTAL INFORMATION: ACCRUED EXPENSES: The components of accrued expenses are as follows:
1994 1993 ----------- ---------- Accrued expenses for preclinical and clinical programs.................. $ 2,068,000 $1,527,000 Accrued legal fees.......................... 344,000 235,000 Accrued wages and vacation.................. 433,000 585,000 Other....................................... 1,853,000 784,000 ----------- ---------- Total....................................... $ 4,698,000 $3,131,000 =========== ==========
STATEMENT OF CASH FLOW:
1994 1993 1992 -------- -------- ---------- Supplemental disclosure of cash flow information: Cash paid during the year for interest........................................ $310,000 $251,000 $ 66,000 ======== ======== ==========
9. INCOME TAXES: The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company provides a valuation allowance against the net deferred tax debits due to the uncertainty of realization. The increase in the valuation allowance for the year ended December 31, 1994 was $16,050,000. 41 THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Temporary differences and carryforwards which gave rise to the deferred tax assets and liabilities at December 31, 1994 are as follows:
DEFERRED DEFERRED TAX ASSETS TAX LIABILITIES ------------- --------------- Depreciation.......................... $ 517,000 -- Net unrealized investment loss........ 1,711,000 -- State taxes (net of Federal benefit).. 5,533,000 -- Amortization.......................... 709,000 -- Net operating losses--Federal......... 34,480,000 -- Other................................. 355,000 -- Tax credits........................... 2,905,000 -- ------------ -- Subtotal.............................. 46,210,000 -- ------------ -- Valuation allowance--Federal.......... (40,677,000) -- Valuation allowance--State............ (5,533,000) -- ------------ -- Total deferred taxes................ $ 0 $0 ============ ==
At December 31, 1994, the Company had approximately $101,412,000 of net operating loss carryforwards, $45,000 of investment tax credit carryforwards, and $2,860,000 of research and development credit carryforwards. These carryforwards expire in the periods 1996 through 2009. The timing and manner in which these losses are used may be limited as a result of certain ownership changes which occurred as provided by IRS Regulations under Section 382. 42 THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED): Summarized quarterly financial data (in thousands of dollars, except for per share) for the years ended December 31, 1994, and 1993 is as follows:
QUARTER ---------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- --------- --------- 1994 - ---- Total revenues................................. $ 3,036 $ 2,941 $ 2,446 $ 2,017 Total expenses................................. 9,874 11,084 11,127 12,008 ------- ------- -------- -------- Net loss....................................... (6,838) (8,143) (8,681) (9,991) Preferred stock dividends...................... (1,337) (1,337) (1,337) (1,337) ------- ------- -------- -------- Net loss applicable to Common Stock............ $(8,175) $(9,480) $(10,018) $(11,328) ======= ======= ======== ======== Net loss per share applicable to Common Stock.. $ (.34) $ (.40) $ (.42) (.48) ======= ======= ======== ======== QUARTER --------------------------------------- FIRST SECOND THIRD FOURTH ------- ------- -------- -------- 1993 - ---- Total revenues................................. $ 2,847 $ 3,556 $ 3,480 $ 3,159 Total expenses................................. 6,354 7,220 10,797 11,148 ------- ------- -------- -------- Net loss....................................... (3,507) (3,664) (7,317) (7,989) Preferred Stock dividends...................... (1,337) (1,337) (1,337) (1,337) ------- ------- -------- -------- Net loss applicable to Common Stock............ $(4,844) $(5,001) $ (8,654) $ (9,326) ======= ======= ======== ======== Net loss per share applicable to Common Stock.. $ (.21) $ (.21) $ (.37) $ (.39) ======= ======= ======== ========
43 SIGNATURES ---------- Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized this 21st day of March, 1995. THE LIPOSOME COMPANY, INC. AND SUBSIDIARIES By: /s/ Charles A. Baker ----- ---------------- Charles A. Baker Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on the 21st day of March, 1995 on behalf of the Registrant and in the capacities indicated. /s/ Charles A. Baker Chairman of the Board, Chief Executive Officer - --------------------- Officer and Director (Chief Executive Officer) Charles A. Baker /S/ Edward G. Silverman Executive Vice President and Chief - ------------------------ Operating Officer Edward G. Silverman /S/ Brooks Boveroux Vice President Finance, Chief Financial - -------------------- Officer and Treasurer Brooks Boveroux /S/ Dennis A. Rodrigues Controller (Chief Accounting Officer) - ------------------------ Dennis A. Rodrigues /S/ James G. Andress Director - --------------------- James G. Andress /S/ Morton Collins Director - ------------------- Morton Collins /S/ Stuart Feiner Director - ------------------ Stuart Feiner /S/ Robert F. Hendrickson Director - -------------------------- Robert F. Hendrickson /S/ Bengt Samuelsson, Dr. Director - -------------------------- Bengt Samuelsson, Dr. /S/ Joseph T. Stewart, Jr. Director - --------------------------- Joseph T. Stewart, Jr. /S/ Gerald Weissmann, M.D. Director - --------------------------- Gerald Weissmann, M.D. /S/ Horst Witzel, Dr.-Ing. Director - --------------------------- Horst Witzel, Dr.-Ing. 44 Item l4(a)3. Exhibits to Form l0-K - ----------------------------------- (A) Exhibits Exhibit Number - ------ 3(i)-01 Certificate of Incorporation of the Company, and Amendments thereto. 3(ii) By-Laws of the Company (Filed with Registration No. 33-23292, and incorporated herein by reference thereto). l0-01 The Liposome Company, Inc. l983 Incentive Stock Option Plan (Filed with Registration No. 33-66924, and incorporated herein by reference thereto). l0-02 The Liposome Company, Inc. l984 Non-Qualified Stock Option Plan (Filed with Registration No. 33-66924, and incorporated herein by reference thereto). l0-03 The Liposome Company, Inc. l985 Incentive Stock Option Plan (Filed with Registration No. 33-66924, and incorporated herein by reference thereto). l0-04 The Liposome Company, Inc. l985 Non-Qualified Stock Option Plan (Filed with Registration No. 33-66924, and incorporated herein by reference thereto). l0-05 The Liposome Company, Inc. l986 Employee Stock Option Plan (Filed with Registration No. 33-66924, and incorporated herein by reference thereto). l0-06 The Liposome Company, Inc. l986 Non-Qualified Stock Option Plan (Filed with Registration No. 33-66924, and incorporated herein by reference thereto). 10-07 The Liposome Company, Inc. 1991 Director's Non-Qualified Stock Option Plan (Filed with Registration No. 33-66924, and incorporated here by reference thereto). 10-08 Agreement dated December 8, 1989 between the Company and Charles A. Baker (Filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated herein by reference thereto). 10-09 Amendment dated November 17, 1994 to Employment Agreement dated December 8, 1989 between the Company and Charles A. Barker. 10-10 Development and License Agreement dated November 19, 1990 among the Company, Pfizer Inc. and Pfizer Chemical Corporation. (Filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated herein by reference thereto). 10-10 Joint Venture Agreement dated as of November 19, 1986 by and among the Company, Nippon Oil & Fats Co., Ltd., and Techno-Venture Co., Ltd., and associated agreements (Filed with Registration No. 33-39041, and incorporated herein by reference thereto). 10-11 Territory Expansion Agreement dated as of December 12, 1988 by and among the Company, Nippon Oil & Fats Co., Ltd., and Techno-Venture Co., Ltd., and Nichiyu Liposome Co., Ltd., and associated agreements (Filed with Registration No. 33-39041, and incorporated, and incorporated herein by re-finance thereto). 45 Item 14(a)3. Exhibits to Form 10-K (Continued) - ----------------------------------------------- Exhibit Number - ------ 10-12 *Amphotericin B Supply Agreement dated as of January 1, 1993, between the Company and Bristol-Meyers Squibb Company. 10-13 *License Agreement dated as of September 2, 1994, between the Company and Bristol-Meyers Squibb Company. 10-14 Lease Agreement dated December 14, 1992, between the Company and Peregrine Investment Partners I (Filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated herein by reference) thereto. 10-15 First Amendment dated October 29, 1993 to Lease Agreement between the Company and Peregrine Investment Partners I. 21 List of Company subsidiaries. 23 Consent of Independent Accountants. 27 Financial Data Schedule. - ----------- * CONFIDENTIAL TREATMENT REQUESTED 46 EX-3.(I).01 2 CERTIFICATE OF INCORPORATION EXHIBIT 3(i)-01 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE LIPOSOME COMPANY, INC, Pursuant to Section 242 of the General Corporation Law of the State of Delaware The undersigned, being the Vice President and Secretary of THE LIPOSOME COMPANY, INC., a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby certifies as follows: 1. The Certificate of Incorporation of the Company was filed in the office of the Secretary of State of the State of Delaware on August 6, 1981, and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on August 6, 1981. 2. The former name of the Company was The Liposome Corporation. Its name was changed by a Certificate of Amendment filed in the office of the Secretary of State of the State of Delaware on May 24, 1983 and a certified copy thereof was recorded in the office of the recorder of New Castle County, Delaware, on May 24, 1983. 3. The first paragraph and section (i) of ARTICLE FOURTH of the Company's Certificate of Incorporation is hereby amended and is to read in its entirety as follows: "FOURTH. The total number of shares of stock which the Corporation ------ shall have the authority to issue is 62,400,000 shares, which shares shall be classified as follows: (i) 60,000,000 shares of Common Stock, par value $0.01 per share (hereinafter called the "Common Stock");" 4. These amendments have been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware, 2 IN WITNESS WHEREOF, the undersigned has hereunto made and executed this Certificate of Amendment this 26th day of October, 1993. THE LIPOSOME COMPANY, INC. By: /s/ Allen Bloom ----------------------- Allen Bloom, Vice President and Secretary ATTEST: /s/ Kenneth Rubin ----------------------- Kenneth Rubin Assistant Secretary 3 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE LIPOSOME COMPANY, INC. Pursuant to Section 242 of the General Corporation Law of the State of Delaware The undersigned, being the Vice President and Secretary of THE LIPOSOME COMPANY, INC., a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby certifies as follows: 1. The Certificate of Incorporation of the Company was filed in the office of the Secretary of State of the State of Delaware on August 6, 1981, and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on August 6, 1981. 2. The former name of the Company was The Liposome Corporation. Its name was changed by a Certificate of Amendment filed in the office of the Secretary of State of the State of Delaware on May 24, 1983 and a certified copy thereof was recorded in the office of the recorder of New Castle County, Delaware, on May 24, 1983. 3. ARTICLE TENTH of the Company's Certificate of Incorporation is hereby added and is to read in its entirety as follows: "TENTH. The annual meeting of the stockholders of this Corporation, for the election of directors and the transaction of such other business as may properly come before said meeting, shall be held annually at such place within or without the State of Delaware and at such time as may from time to time be designated by the Board of Directors and set forth in the notice of the meeting. Special meetings of the stockholders of this Corporation, for the transaction of such business as may properly come before said meeting, may be called (i) by the Chairman of the Board of Directors of the Corporation or (ii) by the holders of 20 percent or more of the outstanding shares of the Corporation entitled to vote if such holders shall deliver a written notice signed by each such holder requesting a special meeting and setting forth with reasonable specificity the purpose and proposed agenda thereof to the Chairman of the Board of Directors of the Corporation, by registered or certified mail, return receipt requested. Upon a determination by the Chairman of the Board to call a special meeting or 2 receipt of notice from holders of 20 percent or more of the outstanding shares of the Corporation entitled to vote, the Board of Directors shall, within a reasonable time, designate the time and place of the special meeting and notify the stockholders of the Corporation in such manner as is required by law or this Certificate of Incorporation." 4. These amendments have been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has hereunto made and executed this Certificate of Amendment this 5th day of July, 1988. THE LIPOSOME COMPANY, INC. By: /s/ Kenneth I. Moch -------------------- Kenneth I. Moch Vice President and Secretary ATTEST: /s/ Kitty Murray ------------------- Kitty Murray Assistant Secretary 3 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE LIPOSOME COMPANY, INC. Pursuant to Section 242 of the General Corporation Law of the State of Delaware The undersigned, being the Vice President and Secretary of THE LIPOSOME COMPANY, INC., a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby certifies as follows: 1. The Certificate of Incorporation of the Company was filed in the office of the Secretary of State of the State of Delaware on August 6, 1981, and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on August 6, 1981. 2. The former name of the Company was The Liposome Corporation. Its name was changed by a Certificate of Amendment filed in the office of the Secretary of State of the State of Delaware on May 24, 1983 and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on May 24, 1983. 3. ARTICLE FOURTH of the Company's Certificate of Incorporation is hereby amended to read in its entirety as follows: "FOURTH. The total number of shares of stock which the Corporation shall have authority to issue is 42,400,000 shares, which shares shall be classified as follows: (i) 40,000,000 shares of Common Stock, par value $0.01 per share (hereinafter called the "Common Stock"); and (ii) 2,400,000 shares of Serial Preferred Stock, par value $.01 per share (hereinafter called the "Serial Preferred Stock"). Authority is hereby expressly granted to the Board of Directors of the Company to adopt from time to time resolutions providing for the issue of the Serial Preferred Stock in one or more series, which resolutions shall fix the number of shares in each such series and the voting power, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations, and restrictions, of such series, to the full extent now or hereafter permitted by the laws of the State of Delaware." 4. ARTICLE NINTH of the Company's Certificate of Incorporation is hereby added and is to read in its entirety as follows: "NINTH. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, 2 (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended hereafter to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the General Corporation Law of the State of Delaware, as so amended. Any repeal or modification of this Article shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any act or omission occurring prior to or at the time of such repeal or modification." 5. These amendments have been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has hereunto made and executed this Certificate of Amendment this 7th day of October, 1987. THE LIPOSOME COMPANY, INC. By: /s/ Kenneth I. Moch --------------------------- Kenneth I. Moch Vice President and Secretary ATTEST: /s/ Kathleen F. Murray ----------------------- Kathleen F. Murray Assistant Secretary 3 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE LIPOSOME COMPANY, INC. Pursuant to Sections 228 and 242 of the General Corporation Law of the State of Delaware The undersigned, being the Vice President and Secretary of THE LIPOSOME COMPANY, INC., a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby certifies as follows: 1. The Certificate of Incorporation of the Company was filed in the office of the Secretary of State of the State of Delaware on August 6, 1981, and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on August 6, 1981. 2. The former name of the Company was The Liposome Corporation. Its name was changed by a Certificate of Amendment filed in the office of the Secretary of State of the State of Delaware on May 24, 1983 and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on May 24, 1983. 3. The initial paragraph of ARTICLE FOURTH of the Company's Certificate of Incorporation is hereby amended to read in its entirety as follows: "FOURTH. The total number of shares of stock which the company shall have authority to issue is 52,600,000 shares, which shares shall be classified as follows: (i) 40,000,000 shares of Common Stock, par value $.01 per share (hereinafter called the "Common Stock"); (ii) 3,000,000 shares of Series A Convertible Preferred Stock, par value $.01 per share (hereinafter called the "Series A Preferred Stock"); (iii) 4,000,000 shares of Series B Convertible Preferred Stock, par value $.01 per share (hereinafter called the "Series B Preferred Stock"); 2 (iv) 400,000 shares of Series C Convertible Preferred Stock, par value $.01 per share (hereinafter called the "Series C Preferred Stock"); (v) 2,200,000 shares of Series D Convertible Preferred Stock, par value $.01 per share (hereinafter called the "Series D Preferred Stock"). Authority is hereby expressly granted to the Board of Directors to fix by resolution or resolutions the powers, preferences and rights, and the qualifications, limitations and restrictions of such Series D Preferred Stock, to the full extent provided by the laws of the State of Delaware; provided, however, that such Series D -------- ------- Preferred Stock shall rank on a parity with the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series 1 Stock (as hereafter defined) and the Series 3 Stock (as hereafter defined) with respect to liquidation, dissolution and winding up of the Company; and (vi) 3,000,000 shares of Serial Preferred Stock, par value $.01 per share (hereinafter called the "Serial Preferred Stock"). Authority 3 is hereby expressly granted to the Board of Directors of the Company to adopt from time to time resolutions providing for the issue of the Serial Preferred Stock in one or more series, which resolutions shall fix the number of shares in each such series and the designations, powers, preferences, and rights, and the qualifications, limitations, and restrictions, of such series, to the full extent now or hereafter permitted by the laws of the State of Delaware, provided, however, that the Board of Directors shall not have authority to adopt a resolution providing that any of the Serial Preferred Stock shall have a liquidation preference subordinate to the liquidation preference of Series A and B Preferred Stock but superior to the liquidation preference of Series C Preferred Stock without the unanimous written consent of the holders of shares of Series C Preferred Stock. The Series A Preferred Stock and the Series B Preferred Stock are hereinafter referred to collectively as the "Series A and B Preferred Stock." 4 The designations, preferences and rights, and qualifications, limitations or restrictions relating to the Common Stock, the Series A and B Preferred Stock and the Series C Preferred Stock are hereby fixed as follows:" 4. These amendments have been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has hereunto made and executed this Certificate of Amendment this 14th day of July, 1986. THE LIPOSOME COMPANY, INC. By: /s/ Kenneth I. Moch --------------------------- Kenneth I. Moch Vice President and Secretary ATTEST: /s/ Hope Baxter ------------------- Hope Baxter Assistant Secretary 5 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE LIPOSOME COMPANY, INC. Pursuant to Sections 228 and 242 of the General Corporation Law of the State of Delaware The undersigned, being the Vice President and Secretary of THE LIPOSOME COMPANY, INC., a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby certifies as follows; 1. The Certificate of Incorporation of the Company was filed in the office of the Secretary of State of the State of Delaware on August 6, 1981, and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on August 6, 1981. 2. The former name of the Company was The Liposome Corporation. Its name was changed by a Certificate of Amendment filed in the office of the Secretary of State of the State of Delaware on May 24, 1983 and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on May 24, 1983. 3. ARTICLE FOURTH, section 1, of the Company's Certificate of Incorporation is hereby amended to read in its entirety as follows: "1. Dividend Rights. The holders of shares of Series A and B --------------- Preferred Stock shall be entitled to receive dividends when, as and if, and in the amount, declared by the Board of Directors of the Company and out of assets which are by law available for the payment of dividends. So long as any shares of Series A and B Preferred Stock are outstanding, the Company shall not declare and pay or set apart for payment any dividends or make any other distribution on any junior stock (which for purposes of this Article shall mean the Company's Common Stock and any other class or series of capital stock of the Company hereafter authorized over which the Series A and B Preferred Stock shall have preference or priority in the payment of dividends or upon the dissolution of, or the distribution of assets of, the Company) or any parity stock (which for purposes of this Article shall mean any class or series of the Company's capital stock ranking on a par with the Series A and B Preferred Stock in the payment of dividends or upon the dissolution of, or the distribution of assets of, the Company), other than a dividend payable in junior stock." 4. These amendments have been duly adopted by written consent of the stockholders of the Company in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware and written notice has been given as provided in such subsection. 2 IN WITNESS WHEREOF, the undersigned has hereunto made and executed this Certificate of Amendment this 2nd day of December, 1985. THE LIPOSOME COMPANY, INC. By: /s/ Kenneth I. Moch --------------------------- Kenneth I. Moch Vice President and Secretary ATTEST: /s/ Hope Baxter ------------------- Hope Baxter Assistant Secretary 3 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE LIPOSOME COMPANY, INC. Pursuant to Section 242 of the General Corporation Law of the State of Delaware The undersigned, being the Vice President and Secretary of THE LIPOSOME COMPANY, INC., a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby certifies as follows: 1. The Certificate of Incorporation of the Company was filed in the office of the Secretary of State of the State of Delaware on August 6, 1981, and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on August 6, 1981. 2. The former name of the Company was The Liposome Corporation. Its name was changed by a Certificate of Amendment filed in the office of the Secretary of State of the State of Delaware on May 24, 1983 and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on May 24, 1983. 3. The initial paragraph of ARTICLE FOURTH of the Company's Certificate of Incorporation is hereby amended to read in its entirety as follows: "FOURTH. The total number of shares of stock which the Company shall have authority to issue is 30,000,000 shares, which shares shall be classified as follows: (i) 17,400,000 shares of Common Stock, par value $.01 per share (hereinafter called the "Common Stock"); (ii) 3,000,000 shares of Series A Convertible Preferred Stock, par value $.01 per share (hereinafter called the "Series A Preferred Stock"); (iii) 4,000,000 shares of Series B Convertible Preferred Stock, par value $.01 per share (hereinafter called the "Series B Preferred Stock"); (iv) 400,000 shares of Series C Convertible Preferred Stock, par value $.01 per share (hereinafter called the "Series C Preferred Stock"); and (v) 2,200,000 shares of Series D Convertible Preferred Stock, par value $.01 per share (hereinafter called the "Series D Preferred Stock"). Authority is hereby expressly granted to the Board of Directors to fix by resolution or resolutions the powers, preferences and rights, and the qualifications, limitations and restrictions of such Series D Preferred Stock, to the full extent provided by the laws of the State of Delaware; provided, -------- however, that such Series D Preferred Stock shall rank on a parity with the - ------- Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series 1 Stock (as hereafter defined) and the Series 3 Stock (as hereafter defined) with respect to liquidation, dissolution and winding up of the Company; and (vi) 3,000,000 shares of Serial Preferred Stock, par value $.01 per share (hereinafter called the "Serial Preferred Stock"). Authority is hereby expressly granted to the Board of Directors of the Company to adopt from time to time resolutions providing for the issue of the 2 Serial Preferred Stock in one or more series, which resolutions shall fix the number of shares in each such series and the designations, powers, preferences, and rights, and the qualifications, limitations, and restrictions, of such series, to the full extent now or hereafter permitted by the laws of the State of Delaware, provided, however, that the Board of Directors shall not have authority to adopt a resolution providing that any of the Serial Preferred Stock shall have a liquidation preference subordinate to the liquidation preference of Series A and B Preferred Stock but superior to the liquidation preference of Series C Preferred Stock without the unanimous written consent of the holders of shares of Series C Preferred Stock. The Series A Preferred Stock and the Series B Preferred Stock are hereinafter referred to collectively as the "Series A and B Preferred Stock." The designations, preferences and rights, and qualifications, limitations or restrictions relating to the Common Stock, the Series A and B Preferred Stock and the Series C Preferred Stock are hereby fixed as follows:" 4. ARTICLE FOURTH, section 1, of the Company's Certificate of Incorporation is hereby amended to read in its entirety as follows: 1. Dividend Rights. The holders of shares of Series A and B Preferred --------------- Stock shall be entitled to receive dividends when, as and if, and in the amount, declared by the Board of Directors of the Company and out of assets which are by law available for the payment of dividends. So long as any shares of Series A and B Preferred Stock are outstanding, the Company shall not declare and pay or set apart for payment any dividends or make any other distribution on any junior stock (which for purposes of this Article shall mean the Company's Series C Preferred Stock and Common Stock and any other class or series of capital stock of the Company hereafter authorized over which the Series A and B Preferred Stock shall have preference or priority in the payment of dividends or upon the dissolution of, or the distribution of assets of, the Company) or any parity stock (which for purposes of this Article shall mean any class or series of the Company's capital stock ranking 3 on a par with the Series A and B Preferred Stock in the payment of the dividends or upon the dissolution of, or the distribution of assets of, the Company), other than a dividend payable in junior stock, and shall not redeem, retire, purchase or otherwise acquire, any shares of junior stock or parity stock, except for the conversion of any convertible stock of the Company." 5. ARTICLE FOURTH, section 5(a), of the Company's Certificate of Incorporation is hereby amended to read in its entirety as follows: "5. Preference on Liquidation. ------------------------- (a) Liquidation, Dissolution or Winding Up of the Company. In -------------------------------------- -------------- the event of any liquidation, dissolution or winding up of the Company, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid an amount equal to $.3617 per share, the holders of shares of Series B Preferred Stock then outstanding shall be entitled to be paid an amount equal to $1.2307 per share and the holders of shares of Series C Preferred Stock then outstanding shall be entitled to be paid an amount equal to $4.00 per share (subject, in each case, to appropriate adjustment for subdivisions and combinations), plus declared and unpaid dividends thereon, if any, to the date fixed for distribution, out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus or earnings, after full payment of the liquidation preference to the holders of shares of Serial Preferred Stock, if any, which have a preference or priority upon dissolution of the Company over the Series A, Series B and Series C Preferred Stock and before any payment shall be made in respect to the Company's Common Stock or any other class or series of capital stock of the Company hereafter authorized over which the Series A, Series B, and Series C Preferred Stock shall have preference or priority upon the dissolution of, or the distribution of assets of, the Company. If, upon any liquidation, dissolution or winding up of the Company, the assets of the Company available 4 for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A, Series B and Series C Preferred Stock the full amounts to which they shall be entitled, the holders of shares of Series A, Series B and Series C Preferred Stock and any parity stock shall share ratably in any distribution of assets (after payment of any amounts due in respect of any senior stock (which for purposes of this Article shall mean any class or series of capital stock of the Company hereafter authorized which shall have preference or priority over the Series A, Series B and Series C Preferred Stock and any parity stock upon the dissolution of, or the distribution of the assets of, the Company )) according to the respective amounts which would be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full." 6. ARTICLE FOURTH, section 8, of the Company's Certificate of Incorporation is hereby amended by adding a new sentence at the end thereof which sentence shall read as follows: "For purposes of this section, any stock offered or issued to then existing securityholders of the Company pursuant to any preemptive or anti-dilution right shall not be deemed to be offered or issued in a public or private offering." 7. Subsection 2(a) of the Company's Certificate of Designations, Preferences and Rights of Serial Preferred Series 1 Stock is hereby amended to read in its entirety as follows: "In the event of any liquidation, dissolution or winding up of the Company, the holders of shares of Series 1 Stock then outstanding shall be entitled to be paid an amount equal to $6.00 per share (subject to appropriate adjustment for 5 subdivisions and combinations), out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus or earnings, after full payment of the liquidation preference to the holders of shares of Serial Preferred Stock, if any, which have a preference or priority upon dissolution of the Company over the Series 1 Stock, and before any payment shall be made in respect to the Company's Common Stock or any other class or series of capital stock of the Company hereafter authorized over which the Series 1 Stock shall have preference or priority upon the dissolution of, or the distribution of assets of, the Company. If, upon any liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A, Series B, Series C and Series D Preferred Stock-and the holders of shares of Series 1 and Series 3 Stock the full amounts to which they shall be entitled, the holders of shares of Series A, Series B, Series C and Series D Preferred Stock and the holders of shares of Series 1 and Series 3 Stock and any parity stock shall share ratably in any distribution of assets, after payment of any amounts due in respect of any senior stock, as defined in subsection 5(a) of Article FOURTH of the Company's Certificate of Incorporation, according to the respective amounts which would have been payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full." 8. Section 5 of the Company's Certificate of Designations, Preferences and Rights of Serial Preferred Series 1 Stock is hereby amended by adding a new sentence at the end thereof which sentence shall read as follows: "For purposes of this section, any stock offered or issued to then existing securityholders of the Company pursuant to any preemptive or anti-- 6 dilution right shall not be deemed to be offered or issued in a public or private offering." 9. Subsection 2(a) of the Company's Certificate of Designations, Preferences and Rights of Serial Preferred Series 3 Stock is hereby amended to read in its entirety as follows: "In the event of any liquidation, dissolution or winding up of the Company, the holders of shares of Series 3 Stock then outstanding shall be entitled to be paid an amount equal to $9.00 per share (subject to appropriate adjustment for subdivisions and combinations), out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus or earnings, after full payment of the liquidation preference to the holders of shares of Serial Preferred Stock, if any, which have a preference or priority upon dissolution of the Company over the Series 3 Stock, and before any payment shall be made in respect to the Company's Common Stock or any other class or series of capital stock of the Company hereafter authorized over which the Series 3 Stock shall have preference or priority upon the dissolution of, or the distribution of assets of, the Company. If, upon any liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A, Series B, Series C and Series D Preferred Stock and the holders of shares of Series 1 and Series 3 Stock the full amounts to which they shall be entitled, the holders of shares of Series A, Series B, Series C and Series D Preferred Stock and the holders of shares of Series 1 and Series 3 Stock and any parity stock shall share ratably in any distribution of assets, after payment of any amounts due in respect of any senior stock, as defined in subsection 5(a) of Article FOURTH of the Company's Certificate of Incorporation, according to the respective amounts which would have been payable in respect of shares held by 7 them upon such distribution if all amounts payable on or with respect to said shares were paid in full." 10. These amendments have been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has hereunto made and executed this Certificate of Amendment this 5th day of November, 1985. THE LIPOSOME COMPANY, INC. By: /s/ Kenneth I. Moch --------------------------- Kenneth I. Moch Vice President and Secretary ATTEST: /s/ Hope Baxter ------------------- Hope Baxter Assistant Secretary 8 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE LIPOSOME COMPANY, INC. Pursuant to Sections 242 and 228 of the General Corporation Law of the State of Delaware THE LIPOSOME COMPANY, INC., a corporation organized and existing under the laws of the State of Delaware (the "Company") hereby certifies as follows: 1. The Certificate of Incorporation of the Company was filed in the office of the Secretary of State of the State of Delaware on August 6, 1981, and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on August 6, 1981. 2. The former name of the Company was The Liposome Corporation. Its name was changed by a Certificate of Amendment filed in the office of the Secretary of State of the State of Delaware on May 24, 1983 and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on May 24, 1983. 3. ARTICLE FOURTH, Section 4(k) of the Company's Certificate of Incorporation is hereby amended to read as follows: "(k) Exceptions to Adjustment of Conversion Price. The provisions of -------------------------------------------- this Section 4 shall not be applicable to the following issuances or sales of securities by the Company: (1) issuances pursuant to conversion of the Series A or B Preferred Stock or issuances of, or issuances pursuant to the conversion of, the Serial Preferred Stock; (2) grants to or exercises of stock options to purchase Common Stock by employees; and (3) grants to or exercises of stock options to purchase Common Stock by consultants or advisors to the Company pursuant to stock option plans approved by the Board of Directors of the Company." 4. ARTICLE FOURTH, Section 6(c) is hereby amended to read as follows: "(c) Vote of Series A or B Preferred Stock. Except as otherwise ------------------------------------- provided by law, the holders of shares of Series A and B Preferred Stock, when voting as a class, shall act by vote of 66-2/3% of the shares of Series A and B Preferred Stock outstanding on the record date for such vote." 5. ARTICLE FOURTH, Section 8, is hereby amended to read as follows: "8. Series C Preferred Stock Anti-Dilution Right. If the Company -------------------------------------------- shall make any public or private offering of its stock (other than offerings of securities issuable pursuant to an employee stock 2 option or other compensation plan, including, but not limited to, a Junior Common Stock Plan for employees, and other than offerings of Common Stock to consultants and advisors to the Company pursuant to stock option plans approved by the Board of Directors of the Company), the holders of the shares of Series C Preferred Stock shall have the right, at their election, to purchase such additional shares of the class of stock offered by the Company as shall maintain their percentage equity share of the Company at the same level as before such offering. Any purchase of additional shares pursuant to this Section shall be at the same price and on the same terms and conditions upon which the offering is made, and shall be subsequent to any purchase of such shares by the holders of Series A or B Preferred Stock pursuant to their right of first refusal contained in Section 10.12 of the Convertible Preferred Stock Purchase Agreement dated as of November 12, 1982." 6. These amendments have been duly authorized by the Board of Directors of the Company in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware and have been duly consented to in writing by the stockholders in accordance with the provisions of Section 228 of said Law, and written notice has been given as provided in Section 228. 3 IN WITNESS WHEREOF, The Liposome Company, Inc. has caused this Certificate of Amendment to be executed by Kenneth I. Moch, its Vice President and Secretary, and attested to by Hope Baxter, its Assistant Secretary, this 29th day of July, 1985. THE LIPOSOME COMPANY, INC. By: /s/ Kenneth I. Moch -------------------- Kenneth I. Moch Vice President and Secretary ATTEST: /s/ Hope Baxter - --------------- Hope Baxter Assistant Secretary 4 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE LIPOSOME COMPANY, INC. Pursuant to Sections 242 and 228 of the General Corporation Law of the State of Delaware THE LIPOSOME COMPANY, INC., a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby certifies as follows: 1. The Certificate of Incorporation of the Company was filed in the office of the Secretary of State of the State of Delaware on August 6, 1981, and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on August 6, 1981. 2. The former name of the Company was The Liposome Corporation. Its name was changed by a Certificate of Amendment filed in the office of the Secretary of State of the State of Delaware on May 24, 1983 and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware on May 24, 1983. 3. ARTICLE FOURTH of the Company's Certificate of Incorporation is amended in its entirety to read as set forth in Attachment 1 hereto. 4. Such amendment has been duly authorized by the Board of Directors of the Corporation in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware and has been duly consented to in writing by the stockholders in accordance with the provisions of Section 228 of said Law, and written notice has been given as provided in Section 228. IN WITNESS WHEREOF, The Liposome Company, Inc. has caused this Certificate of Amendment to be executed by Kenneth I. Moch, its Vice President, and attested to by Hope Baxter, its Assistant Secretary, this 24th day of February, 1984. THE LIPOSOME COMPANY, INC. By: /s/ Kenneth I. Moch ---------------------------- Kenneth I. Moch Vice President and Secretary ATTEST: /s/ Hope Baxter ------------------- Hope Baxter Assistant Secretary 2 ATTACHMENT 1 ------------ THE LIPOSOME COMPANY, INC. AMENDMENT TO CERTIFICATE OF INCORPORATION "FOURTH. The total number of shares of stock which the Company shall have authority to issue is 19,800,000 shares, which shares shall be classified as follows: (i) 11,400,000 shares of Common Stock, par value $.01 per share (hereinafter called the "Common Stock"); (ii) 3,000,000 shares of Series A Convertible Preferred Stock, par value $.01 per share (hereinafter called the "Series A Preferred Stock"); (iii) 4,000,000 shares of Series B Convertible Preferred Stock, par value $.01 per share (hereinafter called the "Series B Preferred Stock"); (iv) 400,000 shares of Series C Convertible Preferred Stock, par value $.01 per share (hereinafter called the "Series C Preferred Stock"); and (v) 1,000,000 shares of Serial Preferred Stock, par value $.01 per share (hereinafter called the "Serial Preferred Stock") Authority is hereby expressly 3 granted to the Board of Directors of the Company to adopt from time to time resolutions providing for the issue of the Serial Preferred Stock in one or more series, which resolutions shall fix the number of shares in each such series, and the designations, powers, preferences, and rights, and the qualifications, limitations, and restrictions, of such series, to the full extent now or hereafter permitted by the laws of the State of Delaware; provided, however, that the Board of Directors shall not have authority to adopt a resolution providing that any of the Serial Preferred Stock shall have a liquidation preference subordinate to the liquidation preference of Series A and B Preferred Stock but superior to the liquidation preference of Series C Preferred Stock without the unanimous written consent of the holders of shares of Series C Preferred Stock. The Series A Preferred Stock and the Series B Preferred Stock are hereinafter referred to collectively as the "Series A and B Preferred Stock." The designations, preferences and rights, and qualifications, limitations or restrictions relating to the Common Stock, the Series A and B Preferred Stock and the Series C Preferred Stock are hereby fixed as follows: 4 1. Dividend Rights. The holders of shares of Series A and B Preferred --------------- Stock shall be entitled to receive dividends when, as and if, and in the amount, declared by the board of directors of the Company and out of assets which are by law available for the payment of dividends. So long as any shares of Series A and B Preferred Stock are outstanding, the Company shall not declare and pay or set apart for payment any dividends or make any other distribution on any junior stock (which for purposes of this Article shall mean the Company's Series C Preferred Stock and Common Stock and any other class or series of capital stock of the Company hereafter authorized over which the Series A and B Preferred Stock shall have preference or priority in the payment of dividends or upon the dissolution of, or the distribution of assets of, the Company) or any parity stock (which for purposes of this Article shall mean any class or series of the Company's capital stock ranking on a par with the Series A and B Preferred Stock in the payment of dividends or upon the dissolution of, or the distribution of assets of, the Company), other than a dividend payable in junior stock, and shall not redeem, retire, purchase or otherwise acquire, any shares of junior stock or parity stock, except for the conversion of Series C Preferred Stock as provided in Section 3. 5 2. Redemption. ---------- 2.1. Mandatory Redemption. -------------------- (a) The Company shall redeem, to the extent permitted by law, on December 31, 1988, and on each December 31 thereafter to and including December 31, 1992, a number of shares of Series A Preferred Stock and a number of shares of Series B Preferred Stock equal to 20% of the number of shares of Series A Preferred Stock and 20% of the number of shares of Series B Preferred Stock, respectively, issued and outstanding as of November 12, 1982 (including shares held in escrow as of such date plus any additional shares issued thereafter at the Second Closing under the Convertible Stock Purchase Agreement dated as of November 12, 1982 among the Company, The Liposome Company, a New Jersey limited partnership, and certain purchasers of the Company's Series A and B Preferred Stock), or such lesser number of shares of such Series A and B Preferred Stock then issued and outstanding. The redemption price of the Series A Preferred Stock shall be $.7234 per share, and the redemption price of the Series B Preferred Stock shall be $1.2307 per share, in each case as adjusted for stock splits, recapitalizations, reclassifications and the like, plus declared and unpaid dividends thereon to the date fixed for redemption (the 6 "Mandatory Series A Redemption Price" and the "Mandatory Series B Redemption Price," respectively). (b) After an Event of Default (as defined in Section 2.4 hereof) shall have occurred, the Company shall redeem, to the extent permitted by law, all or any part of the shares of Series A or B Preferred Stock held by a holder of such shares who during the continuance of such Event of Default gives to the Company written notice requesting that such shares of Series A or B Preferred Stock be redeemed. Such redemption shall be at a redemption price equal to $.7234 per share in the case of the Series A Preferred Stock and $1.2307 in the case of the Series B Preferred Stock, in each case as adjusted for stock splits, recapitalizations, reclassifications and the like, plus accrued and unpaid dividends thereon to the date fixed for redemption. 2.2. Notice of Redemptions. If pursuant to Section 2.1(a) hereof the --------------------- Company shall be required to redeem any shares of Series A or B Preferred Stock, or if pursuant to Section 2.1(b) hereof a holder of Series A or B Preferred Stock shall become entitled to request redemption of shares of Series A or B Preferred Stock, notice thereof shall be sent, at least 60 days prior to the date fixed for redemption in the case of redemption pursuant to Section 2.1(a), and as promptly as practicable following occurrence 7 of the Event of Default in the case of redemption pursuant to Section 2.1(b), to each holder of record whose stock is to be or is entitled to be redeemed, as the case may be, by registered or certified mail, postage paid, addressed to such holder at such holder's address as the same shall appear on the books of the Company. Such notice shall (a) if given pursuant to Section 2.1(a), state that the Company is required to redeem such shares, or if given pursuant to Section 2.1(b), state that such holder may at his option request that the Company redeem all or part of his shares, (b) state, if applicable, the date fixed for the redemption thereof, (c) state the per share redemption price, and (d) if such redemption is pursuant to Section 2.1(a), call upon such holder to surrender to the Company on or after said date at the place designated in such notice, a certificate or certificates representing the number of shares to be redeemed in accordance with such notice or, if such redemption is pursuant to Section 2.1(b), state that such holder may surrender certificates representing some or all of his shares at the place designated in such notice. If less than all of the outstanding shares of Series A and B Preferred Stock are to be redeemed pursuant to Section 2.1(a), or less than all of the shares of Series A and B Preferred Stock as to which redemption has been duly 8 requested are to be redeemed pursuant to Section 2.1(b), the shares of each holder to be redeemed shall be determined pro rata based upon the proportion --- ---- which (i) the sum of the number of shares of Series A and B Preferred Stock and Preferred Stock Equivalents (as defined below) then held by each holder bears to (ii) the aggregate number of shares of Series A and B Preferred Stock and Preferred Stock Equivalents then held by all such holders immediately prior to such redemption. For purposes of this Article FOURTH, a "Preferred Stock Equivalent" shall mean any Common Stock issued upon conversion of a share of Series A or B Preferred Stock or any Common Stock or other security issued in exchange for or in replacement of a share of Series A or B Preferred Stock or Preferred Stock Equivalent, and for purposes of any computation or vote involving such Preferred Stock Equivalents provided for herein the aggregate of all Preferred Stock Equivalents issued in respect of a share of Series A or B Preferred Stock shall be deemed the equivalent of one share of Series A or B Preferred Stock. On or after the date fixed in such notice of redemption in the case of redemption pursuant to Section 2.1(a), or at any time following receipt of such notice of redemption in the case of redemption pursuant to Section 2.1(b), each holder of shares of Series A or B Preferred Stock to be so redeemed 9 shall present and surrender the certificate or certificates for such shares to the Company at the place designated in said notice and thereupon the redemption price of such shares shall be paid to, or to the order of, the person whose name appears on such certificate or certificates as the owner thereof. From and after the date fixed in any such notice as the day of redemption, unless default shall be made by the Company in providing for the payment of the redemption price pursuant to such notice, all dividends on the Series A or B Preferred Stock thereby called for redemption pursuant to Section 2.1(a) hereof shall cease to accrue and all rights of the holders thereof as shareholders of the Company, except the right to receive the redemption price (but without interest thereon), shall cease and terminate, provided, however, that the Company shall deposit the amount required for the payment of any part of the redemption price not claimed on the redemption date with a bank or trust company doing business in the State of New York and having a capital and surplus of at least $250,000,000. Any interest allowed on moneys so deposited which shall remain unclaimed by the holders of the Series A and B Preferred Stock at the end of six years after the redemption date shall be paid by such bank or trust company to the Company, but the Company shall remain obligated to 10 make payment thereof to the holders of Series A or B Preferred Stock entitled thereto (subject to any applicable escheat or similar laws). Any shares of Series A or B Preferred Stock redeemed by the Company pursuant to either Section 2.1(a) or Section 2.1(b) shall be retired and shall not be reissued and the Company may from time to time take such appropriate corporate action as may be necessary to reduce the authorized Series A or B Preferred Stock. 2.3. Transfer Books. In order to facilitate the redemption of any -------------- shares of Series A and B Preferred Stock, the Board of Directors of the Company is authorized to cause the transfer books for such Series A and B Preferred Stock to be closed as to the shares to be redeemed. 2.4. Events of Default. For purposes of this Section 2, an Event of ----------------- Default under this [Article] shall be deemed to have occurred (i) if dividends accrued on, or amounts required to be paid in redemption of, the Series A or B Preferred Stock are not paid by the Company when due; (ii) if the Company or any of its subsidiaries shall (a) admit in writing its inability to pay its debts generally as they become due, (b) file a petition or answer or consent seeking relief under the Federal Bankruptcy Code, as now constituted or hereafter amended, or any other applicable Federal or state bankruptcy or insolvency law or other 11 similar law, (c) consent to the institution of proceedings under any law listed in (b) above, or to the filing of any such petition or to the appointment or taking possession of a receiver, liquidator, assignee, trustee, custodian (or other similar official) of the Company or any such subsidiary or of any substantial part of their property, or (d) make an assignment for the benefit of its creditors; (iii) if a decree or order shall be entered by a court for relief in respect of the Company or any of its subsidiaries under the Federal Bankruptcy Code, as now constituted or hereafter amended, or any other applicable Federal or state bankruptcy or insolvency law or other similar law, or appointing a receiver, liquidator, assignee, trustee (or similar official) of the Company or any such subsidiary or of any substantial part of their property or ordering the winding-up or liquidation of their affairs and such decree or order shall not be vacated or set aside or stayed within a period of 30 days from the date of entry thereof; (iv) if the Company willfully fails in any material respect to perform or observe any material agreement, covenant or obligation set forth in the Convertible Preferred Stock Purchase Agreement dated as of November 12, 1982 among the Company, The Liposome Company, a New Jersey limited partnership, and certain purchasers of the Company's Series A or 12 B Preferred Stock; or (v) if default in the observance of the covenant set forth in Section 10.5 of said Purchase Agreement shall have occurred and be continuing. 3. Conversion Rights. The holders of shares of Series A or B ----------------- Preferred Stock shall have the right, at their option, to convert such shares into shares of Common Stock at any time on and subject to the following terms and conditions: (a) Conversion Price. Each share of the Series A and B Preferred ---------------- Stock shall be convertible at the office of the Company, or at the office of the transfer agent, if any, for the Series A and B Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as shall equal the quotient of (i) in the case of the Series A Preferred Stock, $.7234 divided by the Series A Conversion Price, determined as hereinafter provided, in effect at the time of conversion and (ii) in the case of the Series B Preferred Stock, $1.2307 divided by the Series 3 Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The price at which shares of Common Stock shall be deliverable upon conversion of the Series A Preferred Stock (the "Series A Conversion Price") shall initially be $.7234 and the price at which shares of Common Stock shall be deliverable upon conversion of the 13 Series B Preferred Stock (the "Series B Conversion Price") shall initially be $1.2307. Such Conversion Prices shall be adjusted in certain instances as provided below in Section 4. (b) The holders of shares of Series C Preferred Stock shall have the right, at their option, to convert such shares into shares of Common Stock on a one-to-one basis, subject to approval by the Board of Directors, and subject to appropriate adjustment for subdivisions and combinations, at any time after February 15, 1984; provided, however, that all outstanding shares of Series C Preferred Stock shall be converted automatically into shares of Common Stock upon the first underwritten offering of the Company's Common Stock to the general public effected pursuant to a registration statement filed with the Securities & Exchange Commission under the Securities Act of 1933, as amended, on a one-to-one basis, subject to appropriate adjustment for subdivisions and combinations. Shares of Series C Preferred Stock automatically converted shall be deemed to have been converted on a date immediately prior to such public offering, as selected by the Board of Directors of the Company, and the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or 14 holders of such Common Stock on such date selected by the Board of Directors. (c) In case of any merger, consolidation or reorganization of the Company into or with any other corporation, a merger of any other corporation into the Company, or a sale, lease, mortgage, pledge, exchange, transfer or other disposition by the Company of all or substantially all of its assets, or any reclassification of the stock of the Company (other than a change in par value or from no par value to par value or from par value to no par value, or as a result of a stock dividend or subdivision or a combination of shares), each share of Series C Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion of such Series C Preferred Stock would have been entitled upon such consolidation, merger, disposition or reclassification; and, in any such case, appropriate adjustment (as determined in good faith by the board of directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Series C Preferred Stock, to the end that the provisions set forth herein shall thereafter be applicable, as nearly as reasonably may be, in 15 relation to any shares of stock or other property thereafter deliverable upon the conversion of the Series C Preferred Stock. (d) Dividends. Payment or adjustment shall be made upon any --------- conversion on account of any dividends declared but not yet paid on the shares of Series A, B or C Preferred Stock surrendered for conversion and on the shares of Series C Preferred Stock automatically converted or on account of any dividends declared but not yet paid on the Common Stock issued upon such conversion. (e) Conversion of Series A, B or C Preferred Stock. In order to convert shares of Series A, B or C Preferred Stock into Common Stock or to formally reflect the automatic conversion of shares of Series C Preferred Stock into Common Stock, the holder thereof shall surrender the certificate or certificates therefor at the office of the Company or of the transfer agent hereinabove mentioned, and the holder shall give written notice to the Company therewith that he elects to convert such shares. If any holder of shares of Series A, B or C Preferred Stock shall desire to have the certificate or certificates for shares of Common Stock issued in a name or names other than the name or names of the holder or holders of record of such shares of Series A, B or C Preferred Stock, such certificate or certificates 16 shall be duly endorsed to the transferee or in blank or shall be accompanied by a proper instrument or instruments of assignment to such transferee or in blank; such certificate or certificates shall also be accompanied by proof of payment of any applicable transfer taxes. Shares of Series A or B Preferred Stock and shares of Series C Preferred Stock converted at the holder's option shall be deemed to have been converted immediately prior to the close of business on the date of the surrender of such shares for conversion as provided above ("Conversion Date"), and the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock on the Conversion Date. As promptly as practicable on or after the Conversion Date (or, in the case of automatic conversion of Series C Preferred Stock, on or after the date the certificates for shares of Series C Preferred Stock are surrendered as provided above), the Company will issue and deliver, at the office at which such surrender is made, (i) a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with an appropriate portion of the applicable Conversion Price in cash in lieu of any fraction of a share, and (ii) a new certificate or certificates for the numbers of shares of 17 Series A, B or C Preferred Stock, if any, represented by the certificate or certificates surrendered but not converted, to the person or persons entitled to receive the same. (f) Cancellation of Series A, B or C Preferred Stock. All shares of Series C Preferred Stock automatically converted, and all shares of Series A, B or C Preferred Stock which shall have been surrendered for conversion at the holder's option as herein provided, shall no longer be deemed to be outstanding, and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall forthwith cease and terminate except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and payment of any accrued and unpaid dividends thereon, provided, however, that the provisions of this Section 3(f) shall not affect any rights which holders of Series A, B or C Preferred Stock may enjoy under any separate instrument or agreement pursuant to which such Series A, B or C Preferred Stock is issued or sold. Any shares of Series A, B or C Preferred Stock so converted shall be retired and cancelled and shall not be reissued. 4. Adjustment of Conversion Prices. The Series B Conversion Price and ------------------------------- (subject to subsection 4(g) hereof) the Series A Conversion Price from time to time in effect shall 18 be subject to adjustment (to the nearest tenth of a cent) from time to time as follows: (a) Stock Dividends, Subdivisions and Combinations. If the Company ---------------------------------------------- shall: (1) declare a dividend payable in, or a distribution of, Common Stock, to the holders of any other class or series of the Company's capital stock, or (2) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (3) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then each Conversion Price shall be adjusted to that price determined by multiplying such Conversion Price by a fraction (i) the numerator of which shall be the total number of outstanding shares of Common Stock immediately prior to such event, and (ii) the denominator of which shall be the total number of outstanding shares of Common Stock immediately after such event. (b) Issuance of Additional Shares of Common Stock. If the Company --------------------------------------------- shall (except as hereinafter provided) issue any additional shares of Common Stock (whether original issuance or out of treasury shares) for a 19 consideration per share less than either Conversion Price, then such Conversion Price upon each such issuance shall be adjusted to that price determined by multiplying such Conversion Price by a fraction: (1) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock plus the quotient resulting from dividing the aggregate consideration received for such additional shares of Common Stock by the Conversion Price (as in effect immediately prior to the adjustment provided for herein) and (2) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock, plus the number of such additional shares of Common Stock so issued. The provisions of this subsection shall not apply to any additional shares of Common Stock which are distributed to holders of the Company's capital stock as a stock dividend, for which an adjustment is provided for under subsection (a) of this Section. No adjustment of the Conversion Price shall be made under this subsection upon the issuance of any additional shares of Common Stock which 20 are issued pursuant to the exercise of any warrants, options, or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities, if any such adjustment shall previously have been made upon the issuance of such warrants, options or other rights or upon the issuance of such convertible securities (or upon the issuance of any warrants, options or other rights therefor) pursuant to subsection (c) of this Section. (c) Issuance of Warrants, Options, Other Rights or Convertible ------------------------------------------- -------------- Securities. In case the Company shall issue any warrants, options or other - ---------- rights to subscribe for or purchase (i) any additional shares of Common Stock or (ii) any convertible securities, or in case the Company shall issue any convertible securities, and, in either such case, the consideration per share for which additional shares of Common Stock may at any time thereafter be issuable pursuant to such warrants, options or other rights or pursuant to the terms of such convertible securities shall be less than the Conversion Price, then the Conversion Price upon each such issuance shall be adjusted to that price determined by multiplying the Conversion Price by a fraction: (1) the numerator of which shall be the number of shares of Common Stock outstanding 21 immediately prior to the issuance of such warrants, options or other rights, or such convertible securities, plus the quotient resulting from dividing the aggregate consideration received in respect of additional shares of Common Stock issuable pursuant to such rights or upon conversion of such convertible securities (equal to the aggregate consideration received for such rights or convertible securities plus the aggregate additional consideration, if any, required to exercise such rights or convert such securities) by the Conversion Price (as in effect immediately prior to the adjustment provided for herein) and (2) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock, plus the maximum number of additional shares of Common Stock issuable pursuant to all such warrants, options or other rights or necessary to effect the conversion or exchange of all such convertible securities. (d) Change in Warrants, Options, Other Rights or Convertible -------------------------------------------- ----------- Securities. Upon any change in the number of shares of Common Stock deliverable - ---------- upon the exercise of any 22 warrants, options, other rights or convertible securities covered in subsection 4(c), or upon any change in the minimum purchase price of such warrants, options, rights or convertible securities, other than a change resulting from the antidilution provisions of such warrants, options, rights or convertible securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon the issuance of such warrants, options, rights or convertible securities not exercised, converted or exchanged prior to such change been made upon the basis of such change; provided, however, that no readjustment pursuant to the terms of this subsection 4 (d) shall have the effect of increasing the Conversion Price to an amount which exceeds the initial Conversion Price set forth in subsection 3(a) or as such Conversion Price shall have been adjusted pursuant to subsection 4(a). (e) Mergers and Consolidations. In case of any merger, consolidation -------------------------- or reorganization of the Company into or with any other corporation, a merger of any other corporation into the Company, or a sale, lease, mortgage, pledge, exchange, transfer or other disposition by the Company of all or substantially all of its assets, or any reclassification of the stock of the Company (other than a change in par value or from no par value to par value or 23 from par value to no par value, or as a result of a stock dividend or subdivision or a combination of shares), each share of Series A or B Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion of such Series A or B Preferred Stock would have been entitled upon such consolidation, merger, disposition or reclassification; and, in any such case, appropriate adjustment (as determined in good faith by the board of directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of the Series A or B Preferred Stock, to the end that the provisions set forth herein (including provisions with respect to adjustments of the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Series A or B Preferred Stock. (f) Alternative Adjustment. Notwithstanding the foregoing, at such ---------------------- time as adjustment of the Conversion Price shall have been required hereunder in respect of shares of Common Stock or convertible securities or warrants, options or other rights to subscribe for or 24 purchase shares of Common Stock or convertible securities, representing an aggregate of at least 20% of the difference between (i) the number of shares of Common Stock outstanding (assuming conversion of the Series A and B Preferred Stock and any other convertible securities then outstanding) immediately prior to the event first requiring adjustment pursuant to this subsection 4(f) and (ii) the number of shares of Common Stock in respect of which such adjustment has theretofore been required, the Conversion Price shall thereafter be adjusted, in the case of any event requiring adjustment of the Conversion Price pursuant to subsections 4(b) or 4(c) above, to such lower price as shall equal the consideration per share for which shares of Common Stock were issued in, or are issuable as a result of, such event. (g) Series A Adjustments. Prior to November 12, 1984, the Series A -------------------- Conversion Price shall be adjusted, if necessary, as provided in subsections 4(a)-4(f) above. Thereafter, the Series A Conversion Price shall be adjusted, in lieu of further adjustments pursuant to the foregoing subsections 4(a)-4(f), upon the occurrence of any event requiring adjustment of the Series B Conversion Price pursuant to this Section 4, to that price determined by multiplying the Series A Conversion Price by a fraction, the numerator of which shall be the new Series B Conversion 25 Price resulting from such adjustment of the Series B Conversion Price and the denominator of which shall be the Series B Conversion Price in effect immediately prior to such adjustment of the Series B Conversion Price. (h) Other Provisions Applicable to Adjustments Under This Section. ------------------------------------------ ------------------ The following provisions shall be applicable to the making of adjustments in the Conversion Price hereinbefore provided in this Section: (1) Computation of Consideration. ---------------------------- (i) To the extent that any additional shares of Common Stock shall be issued for cash, the consideration therefor shall be deemed to be the amount of the cash received by the Company therefor. (ii) The consideration for any additional shares of Common Stock issuable pursuant to any warrants, options or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants, options or other rights, plus the minimum additional consideration payable to the Company upon the exercise of such warrants, options or other rights. (iii) The consideration for any additional shares of Common Stock issuable pursuant to the terms of any convertible securities shall be the 26 consideration received by the Company for issuing any warrants, options or other rights to subscribe for or purchase such convertible securities, plus the consideration paid or payable to the Company in respect of the subscription for or purchase of such convertible securities, plus the minimum additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange in such convertible securities. (iv) Consideration received from an issuance referred to in clauses (i), (ii) and (iii) above shall be exclusive of any amounts paid or receivable for accrued interest or accrued dividends and without deduction of any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, any such issuance. To the extent that any such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair market value of such consideration at the time of such issuance as determined in good faith by the board of directors. In case of the issuance at any time of any additional shares of Common Stock or convertible 27 securities in payment or satisfaction of any dividend upon any class of stock other than Common Stock, the Company shall be deemed to have received for such additional shares of Common Stock or convertible securities a consideration equal to the amount of such dividend so paid or satisfied. (2) Readjustment of Conversion Price. Upon the expiration of the -------------------------------- right to convert or exchange any convertible securities, or upon the expiration of any rights, options or warrants, if any such convertible securities shall not have been converted or exchanged, or if any such rights, options or warrants shall not have been exercised, the number of shares of Common Stock deemed to be issued and outstanding by reason of the fact that they were issuable upon conversion or exchange of any such convertible securities or upon exercise of any such rights, options or warrants shall no longer be deemed to have been issued and outstanding, and the Conversion Price shall forthwith be readjusted and thereafter be the price which it would have been (but not reflecting any other adjustments in the Conversion Price made pursuant to the provisions of this Section 4 after the issuance of such convertible securities, rights, options or 28 warrants) had the adjustment of the Conversion Price made upon the issuance or sale of such convertible securities or the issuance of such rights, options or warrants been made on the basis of the issuance only of the number of additional shares of Common Stock actually issued upon conversion or exchange of such convertible securities or upon the exercise of such rights, options or warrants, and thereupon only the number of additional shares of Common Stock actually so issued shall be deemed to have been issued and only the consideration actually received by the Company (computed in subsection 4(h)(1) hereof) shall be deemed to have been received by the Company. (i) Notice of Adjustments. Whenever either Conversion Price shall be --------------------- adjusted pursuant to this Section 4, the Company shall promptly prepare a certificate signed by the president and the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the board of directors made any determination hereunder) and the applicable Conversion Price after giving effect to such adjustment, and shall promptly cause copies of such certificate to be mailed 29 (by first class mail postage prepaid) to each of the holders of the Series A or B Preferred Stock. (j) Definition. For the purpose hereof, the term "convertible ---------- securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for additional shares of Common Stock, either immediately or upon a specified date or upon the happening of a specified event. (k) Exceptions to Adjustment of Conversion Price. The provisions of -------------------------------------------- this Section 4 shall not be applicable to the following issuances or sales of securities by the Company: (1) issuances pursuant to conversion of the Series A or B Preferred Stock or issuances of, or issuances pursuant to the conversion of, the Serial Preferred Stock; (2) grants to or exercises of stock options to purchase Common Stock by employees; provided that the aggregate number of shares of Common Stock issued or issuable to such employees pursuant to this subsection 4(k)(2) shall not exceed 5% of the sum of the aggregate number of outstanding shares of Common Stock plus the aggregate number of shares of Common Stock which would be outstanding upon (X) conversion of 30 all outstanding shares of the Series A or B Preferred Stock, (Y) exercise of all outstanding warrants, options or other rights to subscribe for or purchase shares of Common Stock and (Z) conversion or exchange of all outstanding convertible securities; and (3) grants to or exercises of stock options to purchase Common Stock under the Company's Non-Qualified Stock Option Plan approved by the Company's Board of Directors and it shareholders and individual Stock Option Agreements thereunder. 5. Preference on Liquidation. ------------------------- (a) Liquidation, Dissolution or Winding Up of Company. In the event ------------------------------------------------- of any liquidation, dissolution or winding up of the Company, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid an amount equal to $.3617 per share, and the holders of shares, of Series B Preferred Stock shall be entitled to be paid an amount equal to $1.2307 per share, (subject, in each case, to appropriate adjustment for subdivisions and combinations), plus declared and unpaid dividends thereon to the date fixed for distribution, out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus or earnings, after full payment of the liquidation preference to the holders of 31 shares of Serial Preferred Stock, if any, which have a preference or priority upon dissolution of the Company over the Series A or B Preferred Stock and before any payment shall be made in respect to the Company's junior stock. After full payment of the liquidation preference to the holders of shares of Series A Preferred Stock then outstanding and to the holders of Series B Preferred Stock then outstanding and to the holders of shares of Serial Preferred Stock, if any, which have preference or priority upon dissolution of the Company over Series A, B and C Preferred Stock, the holders of shares of Series C Preferred Stock shall be entitled to be paid an amount equal to $4.00 per share (subject to appropriate adjustment for subdivisions and combinations), out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus or earnings, before any payment shall be made in respect to the Company's Common Stock or any other class or series of capital stock of the Company hereafter authorized over which the Series C Preferred Stock shall have preference or priority upon the dissolution of, or the distribution of assets of, the Company. If upon any liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of 32 shares of Series A or B Preferred Stock the full amounts to which they shall be entitled, the holders of shares of Series A or B Preferred Stock and any parity stock shall share ratably in any distribution of assets (after payment of any amounts due in respect of any senior stock (which for purposes of this Article shall mean any class or series of capital stock of the Company hereafter authorized which shall have preference or priority over the Series A and B Preferred Stock and any parity stock upon the dissolution of, or the distribution of the assets of, the Company)) according to the respective amounts which would be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. If upon any liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of Series C Preferred Stock the full amounts to which they shall be entitled, the holders of shares of Series C Preferred Stock shall share ratably in any distribution of assets, after payment of any amounts due in respect of Series A or B Preferred Stock or any senior stock, according to the respective amounts which would be payable in respect of the shares held by them upon 33 such distribution if all amounts payable on or with respect to said shares were paid in full. (b) Notice. If the Company shall propose to take any action of the ------ types described in Section 5(a), subsection 3(c) or in subsection 4(e) hereof, then the Company shall cause to be mailed to the Transfer Agent and to the holders of record of the outstanding shares of Series A, B or C Preferred Stock, at least 20 days prior to the applicable record date hereinafter specified, a notice describing the material terms and conditions of such proposed action, including a description of the stock, cash and property to be received by the holders of the Company's capital stock upon consummation of the proposed action, and stating (i) the date on which a record is to be taken for the purpose of distributing such stock, cash and property or, if a record is not to be taken, the date as of which the holders of the Company's capital stock of record to be entitled to share in such distribution are to be determined or (ii) the date on which such proposed action is expected to become effective and the date as of which it is expected to become effective, and the date as of which it is expected that holders of record of the Company's capital stock shall be entitled to exchange their shares of capital stock for securities or other property deliverable upon consummation of such 34 proposed action. If any material change in the facts set forth in the initial notice shall occur, the Company shall promptly give written notice to each holder of shares of Series A, B or C Preferred Stock of such material change. (c) Waiting Period. The Company shall not consummate any proposed -------------- action of the types described above in Section 5(a), subsection 3(c) or in subsection 4(e) hereof before the expiration of forty-five days after the mailing of the initial notice thereof or fifteen days after the mailing of any subsequent written notice, whichever is later. (d) Appraisal of Non-Cash Distribution. If the Company shall propose ---------------------------------- to take any action of the types described above in Section 5(a), subsection 3(c) or in subsection 4(e) hereof which will involve the distribution of assets other than cash, the Company shall promptly engage independent competent appraisers (who shall be approved by the holders of 66-2/3% of the Series A and B Preferred Stock then outstanding, which approval shall not unreasonably be withheld) to determine the value of the assets to be distributed. The Company shall, upon receipt of such appraiser's valuation, give prompt written notice to each holder of shares of the Series A, B or C Preferred Stock of (i) the appraiser's valuation, and (ii) the Company's 35 valuation, which valuation shall not be greater than that given by the appraiser. 6. Voting. ------ (a) One Class. Except as otherwise provided herein or as required by --------- law, the holders of shares of the Series A, B or C Preferred Stock and the holders of shares of the Company's Common Stock shall vote together as one class on all matters. The holders of shares of Series C Preferred Stock shall have the same voting rights as holders of shares of the Company's Common Stock. (b) Number of Votes for Preferred Stock. At every meeting of ----------------------------------- stockholders of the company, each holder of shares of the Series A or B Preferred Stock shall be entitled to as many votes as are represented by the number of shares of the Common Stock into which such holder's shares of the Series A or B Preferred Stock are then convertible (the total number of such shares of all such holders being hereinafter referred to as the "Convertible Common Shares"). (c) Vote of Series A or B Preferred Stock. Except as otherwise ------------------------------------- provided by law, the holders of shares of Series A and B Preferred Stock, when voting as a class, shall act by the vote of 66-2/3% of the shares of Series A and B Preferred Stock outstanding on the record date for 36 such vote, provided, however, that the provisions of this Article FOURTH shall not be amended except by the unanimous vote or unanimous written consent of the holders of Series A and B Preferred Stock then outstanding. 7. Reservation of Common Stock. The Company shall, at all times when the --------------------------- Series A, B or C Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Series A, B or C Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series A, B or C Preferred Stock. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Series A or B Preferred Stock, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Conversion Price. 8. Series C Preferred Stock Anti-Dilution Right. If the Company -------------------------------------------- shall make any public or private offering of its stock (other than an offering of securities issuable pursuant to an employee stock option or other compensation 37 plan, including, but not limited to, a Junior Common Stock Plan for employees, and other than an offering of Common Stock to be issued pursuant to the Non- Qualified Stock Option Plan approved by the Board of Directors and shareholders of the Company), the holders of the shares of Series C Preferred Stock shall have the right, at their election, to purchase such additional shares of the class of stock offered by the Company as shall maintain their percentage equity share of the Company at the same level as before such offering. Any purchase of additional shares pursuant to this Section shall be at the same price and on the same terms and conditions upon which the offering is made, and shall be subsequent to any purchase of such shares by the holders of Series A or B Preferred Stock pursuant to their right of first refusal contained in Section 10.12 of the Convertible Preferred Stock Purchase Agreement dated as of November 12, 1982." 38 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE LIPOSOME COMPANY, INC. -------------------------- Pursuant to Sections 242 and 228 of the General Corporation Law of the State of Delaware * * * * * * * THE LIPOSOME COMPANY, INC., a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby certifies as follows: I. That the Certificate of Incorporation of the Company was filed in the office of the Secretary of State of the State of Delaware on August 6, 1981, and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on August 6, 1981. II. That Article FOURTH of the Company's Certificate of Incorporation is amended by changing Section 4(k) thereof to read in its entirety as set forth in Attachment 1 hereto. III. That such amendment has been duly authorized by the Board of Directors of the Corporation in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware and duly consented to in writing by the holders of all the outstanding shares of the Preferred Stock and the Common Stock of the Company in accordance with the provisions of Section 228 of said Law. IN WITNESS WHEREOF, The Liposome Company, Inc. has caused this Certificate of Amendment to be executed by Kenneth I. Moch, its Vice-President, and attested to by Hope Baxter, its Assistant Secretary, this 21st day of September, 1983. THE LIPOSOME COMPANY, INC. By: /s/ Kenneth I. Moch ---------------------------- Kenneth I. Moch Vice President and Secretary ATTEST: /s/ Hope Baxter ------------------- Hope Baxter Assistant Secretary 2 Attachment 1 ------------ "(k) Exceptions to Adjustment of Conversion Price. The provisions of -------------------------------------------- this Section 4 shall not be applicable to the following issuance or sales of securities by the Company: (1) issuances pursuant to conversion of the Preferred Stock; (2) grants to or exercises of stock options to purchase Common Stock by employees; provided that the aggregate number of shares of Common Stock issued or issuable to such employees pursuant to this subsection 4(k)(2) shall not exceed 5% of the sum of the aggregate number of outstanding shares of Common Stock plus the aggregate number of shares of Common Stock which would be outstanding upon (X) conversion or all outstanding shares of Preferred Stock, (Y) exercise of all outstanding warrants, options or other rights to subscribe for or purchase shares of Common Stock and (Z) conversion or exchange of all outstanding convertible securities; and (3) issuances pursuant to sales of Common Stock to officers and employees of the Company aggregating not more than 613,000 shares." 3 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE LIPOSOME CORPORATION Pursuant to Sections 242 and 228 of the General Corporation Law of the State of Delaware * * * * * * THE LIPOSOME CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby certifies as follows: I. That the Certificate of Incorporation of the Company was filed in the office of the Secretary of State of the State of Delaware on August 6, 1981, and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on August 6, 1981. II. That Article FIRST of the Certificate of Incorporation is amended by changing the name of the Company to "The Liposome Company, Inc." III. That such amendment has been duly authorized by the Board of Directors of the Corporation in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware and duly consented to in writing by the holders of all the outstanding shares of the Preferred Stock and the Common Stock of the Company in accordance with the provisions of Section 228 of said Law. IN WITNESS WHEREOF, The Liposome Corporation has caused this Certificate of Amendment to be executed by Kenneth I. Moch, its Vice President, and attested to by Richard L. Guido, its Secretary, this 16th day of May, 1983. THE LIPOSOME CORPORATION By: /s/ Kenneth I. Moch ----------------------- Kenneth I. Moch Vice President ATTEST: /s/ Richard L. Guido --------------------- Richard L. Guido Secretary 2 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF THE LIPOSOME CORPORATION Pursuant to Sections 242 and 228 of the General Corporation Law of the State of Delaware * * * * * * THE LIPOSOME CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby certifies as follows: I. That the Certificate of Incorporation of the Company was filed in the office of the Secretary of State of the State of Delaware on August 6, 1981, and a certified copy thereof was recorded in the office of the Recorder of New Castle County, Delaware, on August 6, 1981. II. That Article FOURTH of the Certificate of Incorporation is amended as set forth in Attachment I hereto. III. That such amendment has been duly executed by the Board of Directors of the Corporation in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware and duly consented to in writing by the holders of all the outstanding shares of Common Stock of the Company in accordance with the provisions of Section 228 of said Law. IN WITNESS WHEREOF, The Liposome Corporation has caused this Certificate of Amendment to be executed by A. Douglas Peabody, its Vice President, and attested to by Richard L. Guido, its Secretary, this 12th day of November, 1982. THE LIPOSOME CORPORATION By: /s/ A. Douglas Peabody ------------------------ A. Douglas Peabody Vice President ATTEST: /s/ Richard L. Guido ------------------------ Richard L. Guido Secretary 2 ATTACHMENT 1 FOURTH. The total number of shares of stock which the Company shall ------ have authority to issue is 17,000,000 shares which shares shall be classified as follows: (i) 10,000,000 shares of Common Stock, par value $.01.per share (hereinafter called the "Common Stock"); (ii) 3,000,000 shares of Series A Convertible Preferred Stock, par value $.01 per share (hereinafter called the "Series A Preferred Stock"); and (iii) 4,000,000 shares of Series B Convertible Preferred Stock, par value $.01 per share (hereinafter called the "Series B Preferred Stock"). The Series A Preferred Stock and the Series B Preferred Stock are hereinafter referred to collectively as the "Preferred Stock." The designations, preferences and rights, and qualifications, limitations or restrictions relating to the Common Stock and the Preferred Stock are hereby fixed as follows: 3 1. Dividend Rights. The holders of shares of Preferred Stock shall --------------- be entitled to receive dividends when, as and if, and in the amount, declared by the board of directors of the Company and out of assets which are by law available for the payment of dividends. So long as any shares of Preferred Stock are outstanding, the Company shall not declare and pay or set apart for payment any dividends or make any other distribution on any junior stock (which for purposes of this Article shall mean the Company's Common Stock and any other class or series of capital stock of the Company hereafter authorized over which the Preferred Stock shall have preference or priority in the payment of dividends or upon the dissolution of, or the distribution of the assets of, the Company) or any parity stock (which for purposes of this Article shall mean any class or series of the Company's capital stock ranking on a par with the Preferred Stock in the payment of dividends or upon the dissolution of, or the distribution of the assets of, the Company), other than a dividend payable in junior stock, and shall not redeem, retire, purchase or otherwise acquire, any shares of junior stock or parity stock. 4 2. Redemption. ---------- 2.1. Mandatory Redemption. (a) The Company shall redeem, to the -------------------- extent permitted by law, on December 31, 1988, and on each December 31 thereafter to and including December 31, 1992, a number of shares of Series A Preferred Stock and a number of shares of Series B Preferred Stock equal to 20% of the number of shares of Series A Preferred Stock and 20% of the number of shares of Series B Preferred Stock, respectively, issued and outstanding as of November 12, 1982 (including shares held in escrow as of such date plus any additional shares issued thereafter at the Second Closing under the Convertible Stock Purchase Agreement dated as of November 12, 1982 among the Company, The Liposome Company, a New Jersey limited partnership, and certain purchasers of the Company's Preferred Stock, or such lesser number of shares of such Preferred Stock then issued and outstanding. The redemption price of the Series A Preferred Stock shall be $.7234 per share, and the redemption price of the Series B Preferred Stock shall be $1.2307 per share, in each case as adjusted for stock splits, recapitalizations, reclassifications and the like, plus declared and unpaid dividends thereon to the date fixed for redemption (the "Mandatory Series A Redemption Price" and the "Mandatory Series B Redemption Price", respectively). 5 (b) After an Event of Default (as defined in Section 2.4 hereof) shall have occurred, the Company shall redeem, to the extent permitted by law, all or any part of the shares of Preferred Stock held by a holder of such shares who during the continuance of such Event of Default gives to the Company written notice requesting that such shares of Preferred Stock be redeemed. Such redemption shall be at a redemption price equal to $.7234 per share in the case of the Series A Preferred Stock and $1.2307 in the case of the Series B Preferred Stock, in each case as adjusted for stock splits, recapitalizations, reclassifications and the like, plus accrued and unpaid dividends thereon to the date fixed for redemption. 2.2. Notice of Redemptions. If pursuant to Section 2.1(a) hereof the --------------------- Company shall be required to redeem any shares of Preferred Stock, or if pursuant to Section 2.1(b) hereof a holder of Preferred Stock shall become entitled to request redemption of shares of Preferred Stock, notice thereof shall be sent, at least 60 days prior to the date fixed for redemption in the case of redemption pursuant to Section 2.1(a), and as promptly as practicable following occurrence of the Event of Default in the case of redemption pursuant to Section 2.1(b), to each holder of record whose stock is to be or is entitled to be redeemed, 6 as the case may be, by registered or certified mail, postage paid, addressed to such holder at such holder's address as the same shall appear on the books of the Company. Such notice shall (a) if given pursuant to Section 2.1(a), state that the Company is required to redeem such shares, or if given pursuant to Section 2.1(b), state that such holder may at his option request that the Company redeem all or part of his shares, (b) state, if applicable, the date fixed for the redemption thereof, (c) state the per share redemption price, and (d) if such redemption is pursuant to Section 2.1(a), call upon such holder to surrender to the Company on or after said date at the place designated in such notice, a certificate or certificates representing the number of shares to be redeemed in accordance with such notice or, if such redemption is pursuant to Section 2.1(b), state that such holder may surrender certificates representing some or all of his shares at the place designated in such notice. if less than all of the outstanding shares of Preferred Stock are to be redeemed pursuant to Section 2.1(a), or less than all of the shares of Preferred Stock as to which redemption has been duly requested are to be redeemed pursuant to Section 2.1(b), the shares of each holder to be redeemed shall be determined pro rata --- ---- based upon the proportion which (i) the sum of the number of shares of Preferred Stock and 7 Preferred Stock Equivalents (as defined below) then held by each holder bears to (ii) the aggregate number of shares of Preferred Stock and Preferred Stock Equivalents then held by all such holders immediately prior to such redemption. For purposes of this Article FOURTH, a "Preferred Stock Equivalent" shall mean any Common Stock issued upon conversion of a share of Preferred Stock or any Common Stock or other security issued in exchange for or in replacement of a share of Preferred Stock or Preferred Stock Equivalent, and for purposes of any computation or vote involving such Preferred Stock Equivalents provided for herein the aggregate of all Preferred Stock Equivalents issued in respect of a share of Preferred Stock shall be deemed the equivalent of one share of Preferred Stock. On or after the date fixed in such notice of redemption in the case of redemption pursuant to Section 2.1(a), or at any time following receipt of such notice of redemption in the case of redemption pursuant to Section 2.1(b), each holder of shares of Preferred Stock to be so redeemed shall present and surrender the certificate or certificates for such shares to the Company at the place designated in said notice and thereupon the redemption price of such shares shall be paid to, or to the order of, the person whose name appears on such certificate or certificates as the owner thereof. 8 From and after the date fixed in any such notice as the day of redemption, unless default shall be made by the Company in providing for the payment of the redemption price pursuant to such notice, all dividends on the Preferred Stock thereby called for redemption pursuant to Section 2.1(a) hereof shall cease to accrue and all rights of the holders thereof as shareholders of the Company, except the right to receive the redemption price (but without interest thereon), shall cease and terminate, provided, however, that the Company shall deposit the amount required for the payment of any part of the redemption price not claimed on the redemption date with a bank or trust company doing business in the State of New York and having a capital and surplus of at least $250,000,000. Any interest allowed on moneys so deposited which shall remain unclaimed by the holders of the Preferred Stock at the end of six years after the redemption date shall be paid by such bank or trust company to the Company, but the Company shall remain obligated to make payment thereof to the holders of Preferred Stock entitled thereto (subject to any applicable escheat or similar laws). Any shares of Preferred Stock redeemed by the Company pursuant to either Section 2.1(a) or Section 2.1(b) shall be retired and shall not be reissued and the Company may from time to time take such appropriate 9 corporate action as may be necessary to reduce the authorized Preferred Stock. 2.3. Transfer Books. In order to facilitate the redemption of any -------------- shares of Preferred Stock, the Board of Directors of the Company is authorized to cause the transfer books for such Preferred Stock to be closed as to the shares to be redeemed. 2.4. Events of Default. For purposes of this Section 2, an Event of ----------------- Default under this [Article) shall be deemed to have occurred (i) if dividends accrued on, or amounts required to be paid in redemption of, the Preferred Stock are not paid by the Company when due; (ii) if the Company or any of its subsidiaries shall (a) admit in writing its inability to pay its debts generally as they become due, (b) file a petition or answer or consent seeking relief under the Federal Bankruptcy Code, as now constituted or hereafter amended, or any other applicable Federal or state bankruptcy or insolvency law or other similar law, (c) consent to the institution of proceedings under any law listed in (b) above, or to the filing of any such petition or to the appointment or taking possession of a receiver, liquidator, assignee, trustee, custodian (or other similar official) of the Company or any such subsidiary or of any substantial part of their property, or (d) make an 10 assignment for the benefit of its creditors; (iii) if a decree or order shall be entered by a court for relief in respect of the Company or any of its subsidiaries under the Federal Bankruptcy Code, as now constituted or hereafter amended, or any other applicable Federal or state bankruptcy or insolvency law or other similar law, or appointing a receiver, liquidator, assignee, trustee (or similar official) of the Company or any such subsidiary or of any substantial part of their property or ordering the winding-up or liquidation of their affairs and such decree or order shall not be vacated or set aside or stayed within a period of 30 days from the date of entry thereof; (iv) if the Company wilfully ails in any material respect to perform or observe any material agreement, covenant or obligation set forth in the Convertible Preferred Stock Purchase Agreement dated as of November 12, 1982 among the Company, The Liposome Company, a New Jersey limited partnership, and certain purchasers of the Company's Preferred Stock; or (v) if default in the observance of the covenant set forth in Section 10.5 of said Purchase Agreement shall have occurred and be continuing. 3. Conversion Rights. The holders of shares of Preferred Stock ----------------- shall have the right, at their option, to 11 convert such shares into shares of Common Stock at any time on and subject to the following terms and conditions: (a) Conversion Price. Each share of the Preferred Stock shall be ---------------- convertible at the office of the Company, or at the office of the transfer agent, if any, for the Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as shall equal the quotient of (i) in the case of the Series A Preferred Stock, $.7234 divided by the Series A Conversion Price, determined as hereinafter provided, in effect at the time of conversion and (ii) in the case of the Series B Preferred Stock, $1.2307 divided by the Series B Conversion Price, determined as hereinafter provided, in effect at the time of conversion. The price at which shares of Common Stock shall be deliverable upon conversion of the Series A Preferred Stock (the "Series A Conversion Price") shall initially be $.7234 and the price at which shares of Common Stock shall be deliverable upon conversion of the Series B Preferred Stock (the "Series B Conversion Price") shall initially be $ 1.2307. Such Conversion Prices shall be adjusted in certain instances as provided below in Section 4. (b) Dividends. Payment or adjustment shall be made upon any --------- conversion on account of any dividends declared but not yet paid on the shares of Preferred Stock 12 surrendered for conversion or on account of any dividends declared but not yet paid on the Common Stock issued upon such conversion. (c) Conversion of Preferred Stock. In order to convert shares of ----------------------------- Preferred Stock into Common Stock, the holder thereof shall surrender the certificate or certificates therefor at the office of the Company or of the transfer agent hereinabove mentioned, and shall give written notice to the Company therewith that he elects to convert such shares. If any holder of shares of Preferred Stock shall desire to have the certificate or certificates for shares of Common Stock issued in a name or names other than the name or names of the holder or holders of record of such shares of Preferred Stock, such certificate or certificates shall be duly endorsed to the transferee or in blank or shall be accompanied by a proper instrument or instruments of assignment to such transferee or in blank; such certificate or certificates shall also be accompanied by proof of payment of any applicable transfer taxes. Shares of Preferred Stock shall be deemed to have been converted immediately prior to the close of business on the date of the surrender of such shares for conversion as provided above ("Conversion Date"), and the person or persons entitled to receive the Common Stock issuable upon such 13 conversion shall be treated for all purposes as the record holder or holders of such Common Stock on the Conversion Date. As promptly as practicable on or after the Conversion Date, the Company will issue and deliver, at the office at which such surrender is made, (i) a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with an appropriate portion of the applicable Conversion Price in cash in lieu of any fraction of a share and (ii) a new certificate or certificates for the numbers of shares of Preferred Stock, if any, represented by the certificate or certificates surrendered but not converted, to the person or persons entitled to receive the same. (d) Cancellation of Preferred Stock. All shares of Preferred Stock ------------------------------- which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall forthwith cease and terminate except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and payment of any accrued and unpaid dividends thereon, provided, however, that the provisions of this Section 3(d) shall not affect any rights which holders of Preferred Stock may enjoy under any 14 separate instrument or agreement pursuant to which such Preferred Stock is issued or sold. Any shares of Preferred Stock so converted shall be retired and cancelled and shall not be reissued. 4. Adjustment of Conversion Prices. The Series B Conversion Price ------------------------------- and (subject to subsection 4(g) hereof) the Series A Conversion Price from time to time in effect shall be subject to adjustment (to the nearest tenth of a cent) from time to time as follows: (a) Stock Dividends, Subdivisions and Combinations. If the Company ---------------------------------------------- shall: (1) declare a dividend payable in, or a distribution of, Common Stock, to the holders of any other class or series of the Company's capital stock, or (2) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (3) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then each Conversion Price shall be adjusted to that price determined by multiplying such Conversion Price by a fraction (i) the numerator of which shall be the total number of outstanding shares of Common Stock immediately prior to such event, and (ii) the denominator of which shall 15 be the total number of outstanding shares of Common Stock immediately after such event. (b) Issuance of Additional Shares of Common Stock. If the Company --------------------------------------------- shall (except as hereinafter provided) issue any additional shares of Common Stock (whether original issuance or out of treasury shares) for a consideration per share less than either Conversion Price, then such Conversion Price upon each such issuance shall be adjusted to that price determined by multiplying such Conversion Price by a fraction: (1) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock plus the quotient resulting from dividing the aggregate consideration received for such additional shares of Common Stock by the Conversion Price (as in effect immediately prior to the adjustment provided for herein) and (2) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock, plus the number of such additional shares of Common Stock so issued. The provisions of this subsection shall not apply 16 to any additional shares of Common Stock which are distributed to holders of the Company's capital stock as a stock dividend, for which an adjustment is provided for under subsection (a) of this Section. No adjustment of the Conversion Price shall be made under this subsection upon the issuance of any additional shares of Common Stock which are issued pursuant to the exercise of any warrants, options, or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities, if any such adjustment shall previously have been made upon the issuance of such warrants, options or other rights or upon the issuance of such convertible securities (or upon the issuance of any warrants, options or other rights therefor) pursuant to subsection (c) of this Section. (c) Issuance of Warrants, Options, Other Rights or Convertible ------------------------------------------- -------------- Securities. In case the Company shall issue any warrants, options or other - ---------- rights to subscribe for or purchase (i) any additional shares of Common Stock or (ii) any convertible securities, or in case the Company shall issue any convertible securities, and, in either such case, the consideration per share for which additional shares of Common Stock may at any time thereafter be issuable pursuant to such warrants, options or other rights or pursuant to the 17 terms of such convertible securities shall be less than the Conversion Price, then the Conversion Price upon each such issuance shall be adjusted to that price determined by multiplying the Conversion Price by a fraction: (1) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such warrants, options or other rights, or such convertible securities, plus the quotient resulting from dividing the aggregate consideration received in respect of additional shares of Common Stock issuable pursuant to such rights or upon conversion of such convertible securities (equal to the aggregate consideration received for such rights or convertible securities plus the aggregate additional consideration, if any, required to exercise such rights or convert such securities) by the Conversion Price (as in effect immediately prior to the adjustment provided for herein) and (2) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock, plus the maximum number of additional shares of Common Stock issuable pursuant to all such warrants, options or other rights or necessary to effect the 18 conversion or exchange of all such convertible securities. (d) Change in Warrants, Options, Other Rights or Convertible -------------------------------------------------------- Securities. Upon any change in the number of shares of Common Stock deliverable - ---------- upon the exercise of any warrants, options, other rights or convertible securities covered in subsection 4(c), or upon any change in the minimum purchase price of such warrants, options, rights or convertible securities, other than a change resulting from the antidilution provisions of such warrants, options, rights or convertible securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon the issuance of such warrants, options, rights or convertible securities not exercised, converted or exchanged prior to such change been made upon the basis of such change; provided, however, that no readjustment pursuant to the terms of this subsection 4(d) shall have the effect of increasing the Conversion Price to an amount which exceeds the initial Conversion Price set forth in subsection 3(a) or as such Conversion Price shall have been adjusted pursuant to subsection 4(a). (e) Mergers and Consolidations. In case of any merger, consolidation -------------------------- or reorganization of the Company into or with any other corporation, a merger of any other 19 corporation into the Company, or a sale, lease, mortgage, pledge, exchange, transfer or other disposition by the Company of all or substantially all of its assets, or any reclassification of the stock of the Company (other than a change in par value or from no par value to par value or from par value to no par value, or as a result of a stock dividend or subdivision or a combination of shares), each share of Preferred Stock shall thereafter be convertible into the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion of such Preferred Stock would have been entitled upon such consolidation, merger, disposition or reclassification; and, in any such case, appropriate adjustment (as determined in good faith by the board of directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of the Preferred Stock, to the end that the provisions set forth herein (including provisions with respect to adjustments of the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property there after deliverable upon the conversion of the Preferred Stock. 20 (f) Alternative Adjustment. Notwithstanding the foregoing, at such ---------------------- time as adjustment of the Conversion Price shall have been required hereunder in respect of shares of Common Stock or convertible securities or warrants, options or other rights to subscribe for or purchase shares of Common Stock or convertible securities, representing an aggregate of at least 20% of the difference between (i) the number of shares of Common Stock outstanding (assuming conversion of the Preferred Stock and any other convertible securities then outstanding) immediately prior to the event first requiring adjustment pursuant to this subsection 4(f) and (ii) the number of shares of Common Stock in respect of which such adjustment has theretofore been required, the Conversion Price shall thereafter be adjusted, in the case of any event requiring adjustment of the Conversion Price pursuant to subsections 4(b) or 4(c) above, to such lower price as shall equal the consideration per share for which shares of Common Stock were issued in, or are issuable as a result of, such event. (g) Series A Adjustments. Prior to November 12, 1984, the Series A -------------------- Conversion Price shall be adjusted, if necessary, as provided in subsections 4(a)-4(f) above. Thereafter, the Series A Conversion Price shall be adjusted, in lieu of further adjustments pursuant to the foregoing 21 subsections 4(a)-4(f), upon the occurrence of any event requiring adjustment of the Series B Conversion Price pursuant to this Section 4, to that price determined by multiplying the Series A Conversion Price by a fraction, the numerator of which shall be the new Series B Conversion Price resulting from such adjustment of the Series B Conversion Price and the denominator of which shall be the Series B Conversion Price in effect immediately prior to such adjustment of the Series B Conversion Price. (h) Other Provisions Applicable to Adjustments Under This Section. ------------------------------------------ ------------------ The following provisions shall be applicable to the making of adjustments in the Conversion Price hereinbefore provided in this Section: (1) Computation of Consideration. ---------------------------- (i) To the extent that any additional shares of Common Stock shall be issued for cash, the consideration therefor shall be deemed to be the amount of the cash received by the Company therefor. (ii) The consideration for any additional shares of Common Stock issuable pursuant to any warrants, options or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants, 22 options or other rights, plus the minimum additional consideration payable to the Company upon the exercise of such warrants, options or other rights. (iii) The consideration for any additional shares of Common Stock issuable pursuant to the terms of any convertible securities shall be the consideration received by the Company for issuing any warrants, options or other rights to subscribe for or purchase such convertible securities, plus the consideration paid or payable to the Company in respect of the subscription for or purchase of such convertible securities, plus the minimum additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange in such convertible securities. (iv) Consideration received from an issuance referred to in clauses (i), (ii) and (iii) above shall be exclusive of any amounts paid or receivable for accrued interest or accrued dividends and without deduction of any compensation, discounts or expenses paid or incurred by the Company for and in the 23 underwriting of, or otherwise in connection with, any such issuance. To the extent that any such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair market value of such consideration at the time of such issuance as determined in good faith by the board of directors. In case of the issuance at any time of any additional shares of Common Stock or convertible securities in payment or satisfaction of any dividend upon any class of stock other than Common Stock, the Company shall be deemed to have received for such additional shares of Common Stock or convertible securities a consideration equal to the amount of such dividend so paid or satisfied. (2) Readjustment of Conversion Price. Upon the expiration of the -------------------------------- right to convert or exchange any convertible securities, or upon the expiration of any rights, options or warrants, if any such convertible securities shall not have been converted or exchanged, or if any such rights, options or warrants shall not have been exercised, the number of shares of Common 24 Stock deemed to be issued and outstanding by reason of the fact that they were issuable upon conversion or exchange of any such convertible securities or upon exercise of any such rights, options or warrants shall no longer be deemed to have been issued and outstanding, and the Conversion Price shall forthwith be readjusted and thereafter be the price which it would have been (but not reflecting any other adjustments in the Conversion Price made pursuant to the provisions of this Section 4 after the issuance of such convertible securities, rights, options or warrants) had the adjustment of the Conversion Price made upon the issuance or sale of such convertible securities or the issuance of such rights, options or warrants been made on the basis of the issuance only of the number of additional shares of Common Stock actually issued upon conversion or exchange of such convertible securities or upon the exercise of such rights, options or warrants, and thereupon only the number of additional shares of Common Stock actually so issued shall be deemed to have been issued and only the consideration actually received by the Company (computed in subsection 4(h)(1) hereof) shall be deemed to have been received by the Company. 25 (i) Notice of Adjustments. Whenever either Conversion Price shall be --------------------- adjusted pursuant to this Section 4, the Company shall promptly prepare a certificate signed by the president and the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the board of directors made any determination hereunder) and the applicable Conversion Price after giving effect to such adjustment, and shall promptly cause copies of such certificate to be mailed (by first class mail postage prepaid) to each of the holders of the Preferred Stock. (j) Definition. For the purposes hereof, the term "convertible ---------- securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for additional shares of Common Stock, either immediately or upon a specified date or upon the happening of a specified event. (k) Exceptions to Adjustment of Conversion Price. The provisions of -------------------------------------------- this Section 4 shall not be applicable to the following issuance or sales of securities by the Company: 26 (1) issuances pursuant to conversion of the Preferred Stock; and (2) grants to or exercises of stock options to purchase Common Stock by employees; provided that the aggregate number of shares of Common Stock issued or issuable to such employees pursuant to this subsection 4(k)(2) shall not exceed 5% of the sum of the aggregate number of outstanding shares of Common Stock plus the aggregate number of shares of Common Stock which would be outstanding upon (X) conversion of all outstanding shares of Preferred Stock, (Y) exercise of all outstanding warrants, options or other rights to subscribe for or purchase shares of Common Stock and (Z) conversion or exchange of all outstanding convertible securities. 5. Preference on Liquidation. ------------------------- (a) Liquidation, Dissolution or Winding Up of Company. In the event ------------------------------------------------- of any liquidation, dissolution or winding up of the Company, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid an amount equal to $.3617 per share, and the holders of shares of Series B Preferred Stock shall be entitled to be paid an amount equal to $1.2307 per share, (subject, in each case, to appropriate adjustment for subdivisions and 27 combinations), plus declared and unpaid dividends thereon to the date fixed for distribution, out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus or earnings, before any payment shall be made in respect to the Company's junior stock. If upon any liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of Preferred Stock the full amounts to which they shall be entitled, the holders of shares of Preferred Stock and any parity stock shall share ratably in any distribution of assets (after payment of any amounts due in respect of any senior stock (which for purposes of this Article shall mean any class or series of capital stock of the Company hereafter authorized which shall have preference or priority over the Preferred Stock and any parity stock upon the dissolution of, or the distribution of the assets of, the Company)) according to the respective amounts which would be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. (b) Notice. If the Company shall propose to take any action of the ------ types described in Section 5(a) or in 28 subsection 4(e) hereof, then the Company shall cause to be mailed to the Transfer Agent and to the holders of record of the outstanding shares of Preferred Stock, at least 20 days prior to the applicable record date hereinafter specified, a notice describing the material terms and conditions of such proposed action, including a description of the stock, cash and property to be received by the holders of the Company's capital stock upon consummation of the proposed action, and stating (i) the date on which a record is to be taken for the purpose of distributing such stock, cash and property or, if a record is not to be taken, the date as of which the holders of the Company's capital stock of record to be entitled to share in such distribution are to be determined or (ii) the date on which such proposed action is expected to become effective and the date as of which it is expected to become effective, and the date as of which it is expected that holders of record of the Company's capital stock shall be entitled to exchange their shares of capital stock for securities or other property deliverable upon consummation of such proposed action. If any material change in the facts set forth in the initial notice shall occur, the Company shall promptly give written notice to each holder of shares of Preferred Stock of such material change. 29 (c) Waiting Period. The Company shall not consummate any proposed -------------- action of the types described above in Section 5(a) or in subsection 4(e) hereof before the expiration of forty-five days after the mailing of the initial notice thereof or fifteen days after the mailing of any subsequent written notice, whichever is later. (d) Appraisal of Non-Cash Distribution. If the Company shall propose ---------------------------------- to take any action of the types described above in Section 5(a) or in subsection 4(e) hereof which will involve the distribution of assets other than cash, the Company shall promptly engage independent competent appraisers (who shall be approved by the holders of 66-2/3% of the Preferred Stock then outstanding, which approval shall not unreasonably be withheld) to determine the value of the assets to be distributed. The Company shall, upon receipt of such appraiser's valuation, give prompt written notice to each holder of shares of the Preferred Stock of (i) the appraiser's valuation, and (ii) the Company's valuation, which valuation shall not be greater than that given by the appraiser. 6. Voting. ------ (a) One Class. Except as otherwise provided herein or as required by --------- law, the holders of shares of the Preferred Stock and the holders of shares of the Company's 30 Common Stock shall vote together as one class on all matters. (b) Number of Votes for Preferred Stock. At every meeting of ----------------------------------- stockholders of the Company, each holder of shares of the Preferred Stock shall be entitled to as many votes as are represented by the number of shares of the Common Stock into which such holder's shares of the Preferred Stock are then convertible (the total number of such shares of all such holders being hereinafter referred to as the "Convertible Common Shares"). (c) Vote of Preferred Stock. Except as otherwise provided by law, the ----------------------- holders of shares of Preferred Stock, when voting as a class, shall act by the vote of 66-2/3% of the shares of Preferred Stock outstanding on the record date for such vote, provided, however, that the provisions of this Article FOURTH shall not be amended except by the unanimous vote or unanimous written consent of the holders of Preferred Stock then outstanding. 7. Reservation of Common Stock. The Company shall, at all times --------------------------- when the Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to 31 time be sufficient to effect the conversion of all outstanding Preferred Stock. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Preferred Stock, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Conversion Price. 32 CERTIFICATE OF INCORPORATION OF THE LIPOSOME CORPORATION FIRST. The name of the Corporation is The Liposome Corporation. ----- SECOND. The address of the Corporation's registered office in the ------ State of Delaware is No. 100 West Tenth Street in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The purpose of the Corporation is to engage in any lawful act ----- or activity for which corporations may be, organized under the General Corporation Law of Delaware. FOURTH. The total number of shares which the Corporation shall have ------ authority to issue is One Thousand (1,000) shares of Common Stock, and the par value of such shares is One Dollar ($1.00) per share. FIFTH. The name and mailing address of the sole incorporator is Roger ----- W. Kapp, 30 Rockefeller Plaza, New York, New York 10112. SIXTH. No election of directors need be by written ballot, unless the ----- By-Laws of the Corporation shall so provide. SEVENTH. In furtherance and not in limitation of the powers conferred ------- by statute, the Board of Directors is expressly authorized to make, alter or repeal the By-Laws of the Corporation. EIGHTH. Whenever a compromise or arrangement is proposed between this ------ Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of 2 the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 5th day of August, 1981. /s/ Roger W. Kapp --------------------- Roger W. Kapp 3 State of New York SS.: County of New York Be it remembered, that on this 5th day of August, 1981, personally appeared before me, the subscriber, a notary public in and for the County aforesaid, Roger W. Kapp, the party to the foregoing Certificate of Incorporation of The Liposome Corporation, known to me personally as such, and he acknowledged the said certificate to be his act and deed and that the facts stated therein are true. Given under my hand and seal of office the day and year aforesaid. /s/ Doris K. Shaw ---------------------- Notary Public 4 EX-10.09 3 EMPLOYMENT AGREEMENT WITH BAKER EXHIBIT 10-09 THE LIPOSOME COMPANY, INC. November 17, 1994 Charles A. Baker Chairman, President and Chief Executive Officer The Liposome Company, Inc. One Research Way Princeton Forrestal Center Princeton, NJ 08540 Dear Mr. Baker: The purpose of this letter is to extend the term of the Employment Agreement made as of December 8,1989 (the "Employment Agreement") between you and The Liposome Company, Inc. The term of the Employment Agreement as provided in Section 2 thereof is extended and shall continue through March 31, 1995. A11 other terms of the Employment Agreement shall continue in full force and effect as provided therein. If the foregoing sets forth correctly our understanding of the subject of this letter, please indicate your acceptance by signing below. Very truly yours, THE LIPOSOME COMPANY, INC. - -Brooks Boveroux Vice President, Finance and Chief Financial Officer Accepted and agreed to this -day of - -7 , 1994 Charles A. Baker ONE RESEARCH Way Princeton Forrestal Center Princeton, New Jersey 08540-6619 (609) 452-7060 Telefax: (609) 452-1890 EX-10.12 4 AMPHOTERICIN AGREEMENT EXHIBIT 10-12 AMPHOTERICIN B SUPPLY AGREEMENT ------------------------------- AMPHOTERICIN B SUPPLY AGREEMENT, dated as of January 1, 1993, between BRISTOL-MYERS SQUIBB COMPANY, a Delaware corporation ("BMS"), and THE LIPOSOME COMPANY, INC., a Delaware corporation ("TLC"). PRELIMINARY STATEMENTS ---------------------- A. BMS (on behalf of its wholly-owned subsidiary E.R. Squibb & Sons, Inc.) and TLC have terminated the Prior Agreement (as defined below) relating to the development and commercialization of Complex (as defined below). B. TLC no longer desires to purchase Fungizone/(R)/ (as defined below) from BMS as otherwise contemplated in the parties' November 20, 1992 Memorandum of Intent. C. TLC, however, still desires to purchase Bulk Amphotericin B (as defined below) to be used in the manufacture of Complex. D. BMS is willing to supply TLC with Bulk Amphotericin B on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties contained in this Agreement, the parties agree as follows: 1 ARTICLE 1 --------- DEFINITIONS ----------- As used in this Agreement, the following terms shall have the meanings set forth in this Article 1 unless the context dictates otherwise. "Affiliate" of either party shall mean any corporation, partnership or other --------- entity that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such party. "Control" and, with correlative meanings, the terms "controlled by" and "under common control with" shall mean the ownership of 50% or more of the equity interest, or the power to direct or cause the direction of the management and affairs, of the entity in question. "Bulk Amphotericin B" shall mean amphotericin B, in bulk chemical form, as is from time to time produced by BMS in accordance with (a) the then-current specifications for its own use for conversion into its Fungizone product, and (b) any mutually agreed, additional specifications. A set of the specifications for Bulk Amphotericin B adopted by BMS and in effect as of the date hereof is attached hereto as Appendix A. "Complex" shall mean amphotericin B lipid complex utilizing a certain lipid ------- formulation intended to facilitate the delivery of amphotericin B to the human body and to reduce adverse reactions ordinarily associated with amphotericin B, in the form heretofore under joint development by the parties pursuant to the Prior Agreement. 2 "Complex IND" shall mean the Investigational New Drug Application No. ----------- 31916 filed with and approved by the FDA for the pursuit of clinical studies involving Complex. "FDA" shall mean the United States Food and Drug Administration. "Fungizone" shall mean the finished dosage form of the amphotericin B- --------- containing pharmaceutical product for injection use as from time to time marketed by BMS as "Fungizone Injectable" under the Fungizone NDA. "Fungizone NDA" shall mean the New Drug Application No. 60517 filed with and ------------- approved by the FDA for the marketing of Fungizone, as from time to time in effect. "Manufacturing Cost", with respect to the Product, shall mean BMS's fully absorbed costs of manufacturing such Product, including direct materials, direct labor and manufacturing overhead. Manufacturing overhead consists of those properly allowable and allocated indirect costs which are incurred or charged in support of manufacturing, including, without limitation, utilities, operating supplies, waste disposal, maintenance, repairs, plant administrative services, supervisory labor, rent, insurance, taxes (other than income taxes) and depreciation. To the extent that any Product is manufactured in whole or in part by BMS's contract manufacturer, "Manufacturing Cost" with respect thereto shall mean BMS's cost attributable to such contract manufacturing. All costs shall be determined and allocated to production based on the then-current generally 3 accepted accounting principles applied on a consistent basis and in accordance with BMS's customary practice. "Prior Agreement" shall mean the Agreement dated May 1, 1986 between TLC and --------------- E.R. Squibb & Sons, Inc. relating to the development and commercialization of Complex. "Product" shall mean Bulk Amphotericin B supplied by BMS hereunder. ------- ARTICLE 2 --------- SUPPLY OF PRODUCTS ------------------ 2.1 Supply of Product. During the term of this Agreement, BMS shall ----------------- manufacture and sell to TLC, and TLC may purchase from BMS, Bulk Amphotericin B pursuant to purchase orders submitted by TLC to BMS from time to time in accordance with Section 2.3; provided, however, that BMS's obligation to supply -------- ------- TLC with the Product may be subject to delay or interruptions resulting from BMS's sourcing, or the unavailability, of crude amphotericin B from third parties. 2.2 Purchase Price. -------------- (a) It is the parties' intent that the purchase price payable by TLC for the Product be equal to the lower of (A) ____% of BMS's Manufacturing Cost thereof and (B) if applicable, the lowest price contemporaneously charged by BMS to any non-Affiliate third party for Bulk Amphotericin B supplied by BMS under reasonably comparable terms and conditions. Accordingly, all determinations of the actual purchase price for the Product, and any adjustments thereto, shall be made on such basis. For shipments to be delivered on or prior to December 31, 1994, the 4 purchase price for the Product shall be $________ per base kilogram. For each calendar year thereafter, BMS shall, not later than October 31 of the preceding year, notify TLC in writing of the purchase price for the Product to be delivered during such calendar year. (b) BMS shall, upon written request by TLC, advise TLC of the anticipated Manufacturing Cost of the Product; provided, however, that BMS shall -------- ------- not be required to do so more frequently than once in any calendar year. TLC shall have the right to request reasonable documentation of BMS's Manufacturing Cost calculations and to request discussion of such calculations with appropriate representatives of BMS. Upon TLC's reasonable request, BMS shall disclose to TLC data and information in support of BMS's Manufacturing Cost. (c) Either party may, whether or not the purchase order in question has been submitted to, or accepted by, BMS, request an adjustment to any purchase price otherwise applicable pursuant to Section 2.2(a), but only if the party initiating discussion has reasonable basis to believe that the then prevailing price may be unreasonably high or low given the relevant facts and circumstances. Following any request pursuant to the foregoing, the parties shall promptly discuss in good faith with a view to agreeing on an adjustment, if any, in order to give effect to the provisions of the first two sentences of Section 2.2(a). Notwithstanding the foregoing, no adjustment of any purchase price shall be made with respect to any shipment unless the adjustment request is received by the party receiving 5 the request at least 30 days prior to the specified delivery date. (d) In the event that the parties fail to reach an agreement as to any adjustment as contemplated by the second sentence of Section 2.2(c), BMS may or, at TLC's request, shall engage its usual independent, certified public accountant to examine such records of BMS as may be necessary to determine the purchase price for the Product as provided in the first two sentences of Section 2.2(a). The results of any such audit shall be promptly made available to TLC. The party initiating the audit shall bear the full cost of the performance of any such audit. The determination by such independent, certified public accountant pursuant to the foregoing as to the purchase price for the Product shall be conclusive and binding upon both parties. 2.3 Forecast: Ordering. ------------------ (a) The parties have heretofore agreed on a tentative supply schedule, with respect to both timing and quantities, through December 31, 1994 for the Product to be supplied by BMS hereunder. Thereafter, with respect to each 12- month period commencing each January, April, July or October, as the case may be, TLC shall, not later than six months prior to the first day of such 12-month period, provide BMS with a forecast of its quarterly requirement of the Product for, together with a firm purchase order for the Product for the first quarter of, such 12-month period, the first such 12-month period being that commencing January 1, 1995 with respect to which TLC shall provide BMS with its forecast no later than June 30, 1994. TLC 6 shall be required to specify in each such purchase order, thereby committing to purchase from BMS, the amount specified in such purchase order, which amount shall in any event be an amount not less than 90%, nor more than 110%, of the amount projected for such first quarter as presented in the immediately preceding 12-month forecast. (b) Orders for the Product to be supplied by BMS hereunder may be on TLC's standard purchase order form; provided, however, that, whether or not -------- ------- reference is made therein to this Agreement, the provisions of this Agreement shall supersede the terms thereof and govern the terms of any sale of such Products by BMS to TLC. Each purchase order shall specify the date on which delivery of the Product is required, which date shall be at least six months following the date of the order and shall not be a date later than the termination date as specified by BMS in its termination notice pursuant to Section 8.9(b). Each order shall be for a total quantity equal to an integral multiple of the required batch quantity specified on Appendix B. BMS shall promptly acknowledge acceptance of such order in writing and advise TLC of the anticipated shipment date of the Product ordered. Once accepted by BMS, the purchase order in question shall constitute a firm order on the part of TLC to purchase from BMS the specified quantity of the Product and a firm commitment on BMS's part to supply such specified quantity, subject, however, to BMS's temporary or indefinite inability to supply the Product arising from delay or interruptions in BMS's sourcing, or the unavailability, of crude amphotericin B from third parties. 7 2.4 Shipments. All sales of the Product under this Agreement shall be --------- F.O.B. BMS shipping point. The title and risk of loss of the Product shall be transferred to TLC from BMS upon delivery to the carrier. All shipments shall be made pursuant to instructions received from TLC or, if not specified, in a commercially reasonable manner as determined by BMS. The Product shall be packaged and shipped in individual units of five base kilograms each and otherwise in appropriate shipping containers, and under such conditions, as agreed upon by the parties. 2.5 Invoicing. The invoice amounts shall be based on the purchase price as --------- provided in Section 2.2(a), subject to any adjustment pursuant to Section 2.2(c). Payments shall be made to BMS not later than 30 days following the date of invoice or shipment, whichever is later. 2.6 Restrictions on Product Use. For purposes of limiting the scope of --------------------------- BMS's obligation hereunder to supply TLC with the Product and precluding any use of the Product not contemplated by this Agreement, TLC agrees not to use the Product acquired from BMS hereunder for any purpose other than for TLC's own production of Complex (including production by TLC's contract manufacturers). 2.7 Drug Master Files. Upon TLC's reasonable request, BMS shall permit TLC ----------------- to cross-reference any pre-existing drug master file (or other comparable regulatory documentation) maintained by BMS solely for the purpose of qualifying Complex made from Bulk Amphotericin B supplied by BMS hereunder as required by applicable law and regulations. In connection with any such 8 cross-referencing, BMS shall also assist TLC in maintaining TLC's qualification current to the extent necessitated by any change in the underlying BMS drug master file (or other comparable regulatory documentation). ARTICLE 3 --------- PRODUCT SPECIFICATIONS, ETC. ---------------------------- 3.1 Specifications. The Product supplied to TLC shall be manufactured by -------------- BMS (or its contract manufacturer) in accordance with the specifications set forth in Appendix A (such specifications, as may be modified by BMS and in ---------- compliance with the then-current drug master file under the Fungizone NDA, the "Specifications") and in accordance with the aforesaid drug master file and - --------------- current Good Manufacturing Practices and manufactured, packaged, stored and shipped by BMS in compliance with all applicable Fungizone NDA and related FDA requirements. TLC shall have no right to require BMS to change the Specifications, any other aspect of composition or formulation or the manufacturing process with respect to the Product. BMS may, in its own discretion, change the Specifications with respect to the Product from time to time. In the event of any proposed change of Specifications, BMS shall give written notice thereof to TLC as soon as practicable and no later than (a) in the case of any proposed change that requires adoption by U.S. Pharmacopoeia ("USP"), the time of submission of such proposed change by BMS to USP for publication as a proposed change, and (b) in the case of any other proposed change, the time of circulation of such proposed change within BMS for adoption after 9 30 days. Should any change of the Specifications by BMS render any batch of the Product unusable by TLC, TLC shall be released from its obligation hereunder to purchase any quantity in such batch. BMS shall promptly notify TLC of any amendment or supplement to BMS's drug master file under the Fungizone NDA. BMS may also, in its own discretion, source crude amphotericin B from third party suppliers, either in addition to or in place of the current supplier. BMS shall promptly notify TLC of any decision by BMS to source crude amphotericin from any such new supplier. 3.2 Quality Control. BMS shall conduct quality control testing of all --------------- Product prior to shipment in a manner consistent with BMS's internal quality control procedures for similar products. BMS shall retain records pertaining to such testing and shall, upon written request by TLC, furnish TLC with copies thereof. BMS shall send TLC a certificate of analysis for each batch of the Product supplied to TLC hereunder. 3.3 Product Validation. TLC solely shall be responsible for all assay, ------------------ testing, stability studies, record keeping and other requirements for validating, to the extent of any requirements additional to those already undertaken by BMS under the Fungizone NDA, the Product for purposes of using such Product. 3.4 Records. Each party shall keep complete and accurate records ------- pertaining to the manufacture, including quality control, of the Product (in the case of BMS) or use and other disposition, including validation as contemplated by Section 3.3, of the 10 Product (in the case of TLC) for at least three years or for such longer period if and as required by law. Each party shall make available such records to the other party for such lawful purpose as such other party may reasonably request in writing. ARTICLE 4 --------- WARRANTY: INDEMNIFICATION ------------------------- 4.1 Warranty. BMS warrants that: (a) at the time of shipment, all Product -------- sold to TLC under this Agreement will conform to the applicable Specifications and additionally be in compliance with any other applicable requirements under the Fungizone NDA; and (b) upon delivery to TLC, TLC shall obtain good and marketable title to all Product sold by BMS hereunder. 4.2 Limitations on Warranty and Remedy. ---------------------------------- (a) Other than as provided in the first sentence of Section 3.1 or in Section 4.1, BMS MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY PRODUCT SUPPLIED HEREUNDER. (b) TLC's remedy and BMS's liabilities to TLC shall be exclusively those set forth in Sections 4.3(a) and 5.1. Without limiting the generality of the preceding sentence, neither party shall in any case be liable to the other party for any indirect, consequential, special, incidental, exemplary or punitive damages. 11 (c) The provisions of this Section 4.2 shall survive the expiration, termination or cancellation of this Agreement. 4.3 Indemnification. --------------- (a) BMS shall defend and indemnify TLC and its Affiliates, and their directors, officers and employees, and hold each of them harmless, from and against any and all claims, suits or demands for liability, damages, costs and expenses (including the reasonable costs and expenses of attorneys and other professionals and court costs) resulting from product recall, personal injury, product liability or property damage relating to or arising from the Product supplied by BMS hereunder, excluding in any event damages for lost profits (collectively, "Claims"), but only to the extent attributable to BMS's breach of its warranties in the first sentence of Section 3.1 or in Section 4 1 (b) TLC shall defend and indemnify BMS and its Affiliates, and their directors, officers and employees, and hold each of them harmless, from and against any and all Claims relating to or arising from TLC's direct or indirect (through third party clinical researchers, compassionate use programs or otherwise) use, promotion, marketing, distribution or sale (whether directly or through distributors), of the Product or the Complex derived from the Bulk Amphotericin B acquired from BMS hereunder, except to the extent that such Claims are attributable to BMS's breach of its warranties in the first sentence of Section 3.1 or in Section 4.1. (c) A party seeking indemnification under Section 4.3(a) or (b), as the case may be, shall: (i) promptly inform 12 the other party of any Claim threatened or filed; (ii) permit such other party to assume direction and control of the defense of the Claim or Claims (including the right to settle at the indemnifying party's sole discretion, provided that any such settlement shall not result in any obligation or liability on the part of the party seeking indemnification); and (iii) at its own costs and expenses, cooperate fully as requested in the defense. ARTICLE 5 --------- NONCONFORMING PRODUCT --------------------- 5.1 Nonconforming Product. All claims by TLC relating to nonconforming --------------------- Product shall be deemed waived unless made by TLC in writing and received by BMS within 75 days after delivery of such Product. As used herein, "nonconforming ------------- Product" means any Product supplied by BMS hereunder that fails to meet in any - ------- material respect the requirements set forth in the first sentence of Section 3.1 or in Section 4.1(a). All claims shall be accompanied by a report of analysis (including a Product sample from the batch analyzed) of the allegedly nonconforming Product that shall have been prepared by the quality control group of TLC, using methods generally approved within the industry. If, after its own analysis of the Product sample, BMS confirms such nonconformity, BMS shall, at TLC's election, either replace the nonconforming Product with conforming Product at BMS's expense or refund to TLC the entire purchase price therefor. The nonconforming Product shall be returned to BMS upon BMS's request and at BMS's expense or, in the absence of such request, 13 destroyed by TLC. If, after its own analysis, BMS does not confirm such nonconformity, the parties shall in good faith attempt to agree upon a settlement of the issue. In the event that the parties cannot resolve the issue, the parties shall submit the disputed Product to an independent laboratory, mutually selected by the parties, for testing and the results of such testing shall be binding upon the parties. The party whose assertion as to the conformity or nonconformity of the Product in question is not borne out by the results of testing of the independent laboratory shall bear all costs and expenses of such testing. ARTICLE 6 --------- RECALL ------ 6.1 Recall Procedure. Adverse Event Reporting. Etc. During the term of this ------------------------------------------------ Agreement, if TLC learns of any information that might give rise to a recall or market withdrawal of Fungizone, or which might result in a field alert report or adverse drug event report pursuant to the Fungizone NDA, TLC shall promptly provide notice thereof to BMS. ARTICLE 7 --------- MISCELLANEOUS PROVISIONS ------------------------ 7.1 Assignment. Neither this Agreement nor any interest hereunder may be ---------- assignable by either party without the prior written consent of the other party; provided, however, that either party may assign this Agreement to any of its - -------- ------- Affiliates 14 or to any successor by merger or sale of substantially all of its assets in a manner such that the assignor shall remain jointly and severally liable and responsible for the performance and observance of all its duties and obligations hereunder. This Agreement shall be binding upon the successors and permitted assigns of the parties. Any assignment not in accordance with this Section 7.1 shall be null and void. 7.2 Force Majeure. Neither party shall be liable to the other party for ------------- loss or damages, nor shall either party have any right to terminate this Agreement, for any default or delay attributable to any act of God, flood, fire, explosion, strike, lockout, labor dispute, shortage of raw materials, casualty or accident, war, revolution, civil commotion, act of public enemies, blockage or embargo, injunction, law, order, proclamation, regulation, ordinance, demand or requirement of any government or subdivisions, authority or representative of any such government, or any other cause beyond the reasonable control of the defaulting party, if the party affected shall give prompt notice of any such cause to the other party. The party giving such notice shall thereupon be excused from such of its obligations hereunder as it is thereby disabled from performing for so long as it is so disabled and for 30 days thereafter. Among other contingencies subject to this Section 7.2, TLC expressly acknowledges that BMS intends to continue to procure crude amphotericin B, a fermentation product, from one or more third party suppliers and has no intention of producing such material on its own. Notwithstanding the foregoing, nothing in 15 this Section 7.2 shall excuse or suspend the obligation to make any payment due hereunder in the manner and at the time provided. 7.3 Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed given if delivered personally or by facsimile transmission (receipt verified), mailed by registered or certified mail (return receipt requested), postage prepaid, or sent by overnight courier service to the parties at the following addresses (or at such other address for a party as shall be specified by like notice; provided that notices of a change of address shall be effective only upon receipt thereof): If to TLC, addressed to: The Liposome Company, Inc. One Research Way Princeton, New Jersey 08540 Attention: Chairman and Chief Executive Officer Telecopier No.: 609-452-1890 If to BMS, addressed to: Bristol-Myers Squibb Company Route 206 and Province Line Road Princeton, New Jersey 08540 Attention: Thomas M. Miller Director, Sourcing Management Telecopier No.: 609-252-3290 with a copy to: Charles Linzner, Senior Counsel 16 Bristol-Myers Squibb Company Route 206 and Province Line Road Princeton, New Jersey 08540 The provisions of this Section 7.3 are not intended to cover purchase orders hereunder submitted by TLC in the ordinary course. 7.4 Amendment. No amendment, modification or supplement of any provision --------- of this Agreement shall be valid or effective unless made in writing and signed by each party. 7.5 Waiver. No provision of this Agreement shall be waived by any act, ------ omission or knowledge of a party or its agents or employees except by an instrument in writing expressly waiving such provision and signed by the waiving party. 7.6 Counterparts. This Agreement may be executed in two counterparts; both ------------ such counterparts taken together shall constitute one and the same instrument. 7.7 Governing Law. This Agreement shall be governed by, and interpreted ------------- and construed in accordance with, the law of the State of New Jersey, without giving effect to conflict of laws principles. 7.8 Severability. Whenever possible, each provision of this Agreement will ------------ be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 7.9 Termination. ----------- 17 (a) Either party may, upon not less than 90 days' written notice to the other party, terminate this Agreement; provided, however, that BMS shall -------- ------- have no right to do so under this Section 7.9(a) unless there shall have occurred a period of twelve consecutive months (the earliest of such 12-month periods being that commencing July 1, 1994) during which TLC has not placed any purchase order pursuant to Section 2.4 for the Product. (b) BMS may upon not less than twelve months' written notice terminate this Agreement; provided, however, that BMS shall have no right to do so under -------- ------- this Section 7.9(b) unless, on or about the intended termination date, BMS and its Affiliates shall have ceased the commercial production of the Product. (c) Failure by either party to comply with any of the material obligations contained in this Agreement shall entitle the other party to give to the party in default a written notice of default specifying the nature of the default and requiring it to cure such default. If such default is not cured within 60 days after the receipt of such notice, the notifying party shall be entitled, without prejudice to any of its rights conferred on it by this Agreement, in addition to any other remedies available to it by law or in equity, to terminate this Agreement by giving written notice to take effect within 30 days after such notice. The right of either party to terminate this Agreement shall not be affected in any way by its waiver or failure to take action with respect to any previous default. 18 (d) The expiration, termination or cancellation of this Agreement for any reason shall have no effect on any purchase order already placed by TLC hereunder, and shall otherwise be without prejudice to any rights which shall have accrued to the benefit of either party, prior to such termination, including, without limitation, each party's rights under Articles 4 and 5. 7.10 Public Announcements. Except as required by law or the regulations of -------------------- the U.S. Securities and Exchange Commission, the National Association of Securities Dealers, Inc. or any national stock exchange, neither party shall make any public announcement concerning this Agreement or the subject matter hereof without the prior written consent of the other party (which consent shall not be unreasonably withheld or delayed). In the event of a legally or regulatorily required public announcement, the party making such announcement shall provide at least five business days in advance the other party with a copy of the proposed text, and such other party shall be entitled to require the incorporation of its reasonable comments, prior to such announcement. 7.11 Entire Agreement of the Parties. This Agreement constitutes and ------------------------------- contains the entire understanding and agreement of the parties and cancels and supersedes any and all prior negotiations, correspondence, understandings and agreements, whether oral or written, between the parties respecting the subject matter hereof. This Section 7.11 shall not, however, be of prejudice to the Agreement dated as of August 25, 1993 and the 19 License Agreement dated as of September 2, 1994 between the parties or to those provisions of the Memorandum of Intent dated November 20, 1992 between the parties to the extent that such provisions do not pertain to the subject matter hereof; among other things, the provisions of Section 4.3 are not intended to supersede any additional indemnity on the part of either party provided for therein. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. THE LIPOSOME COMPANY, INC. By: Name: Title: Date: BRISTOL-MYERS SQUIBB COMPANY By: Name: Title: Date: 20 EX-10.13 5 LICENSE AGREEMENT - BRISTOL-MYERS SQUIBB EXHIBIT 10-13 LICENSE AGREEMENT ----------------- THIS AGREEMENT ("The AGREEMENT") is made and is effective this 2nd day of September, 1994 by and between: THE LIPOSOME COMPANY, Inc. (TLC), a Delaware Corporation , having its principle place of business at One Research Way, Princeton Forrestal Center, Princeton, NJ 08540; and BRISTOL-MYERS SQUIBB COMPANY (B-MS), a Delaware Corporation, having a place of business at Route 206 and Province Line Road, Princeton, NJ 08543. RECITALS -------- 1. B-MS is engaged in the development, manufacture and sale of pharmaceutical products. 2. TLC is engaged in the development, manufacture and sale of liposome-, and other lipid-based, pharmaceutical products. 3. TLC has developed a lipid-based formulation of the antifungal agent amphotericin B, this agent-lipid complex being generally known as "ABLC/(R)/". 4. TLC and B-MS entered into an agreement effective on May 1, 1986 (the "1986 AGREEMENT") regarding research and development of certain liposomal, or lipid- based, formulations of amphotericin B. 5. On November 20, 1992 TLC and B-MS executed a Memorandum of Intent ("MEMORANDUM") setting forth terms and conditions under which the parties agreed to modify their relationship by terminating the 1986 AGREEMENT, except as to obligations of confidentiality, and undertaking certain obligations, including, -1- inter alia transferring from B-MS to TLC technology in the possession of B-MS - ---------- relating to ABLC(R). 6. The parties wish to enter into this AGREEMENT in implementation of those provisions in the Memorandum relating to the transfer from B-MS to TLC of technology in the possession of B-MS relating to the manufacture of ABLC(R). NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties agree to be legally bound as follows: ARTICLE I- DEFINITIONS ---------------------- Section 1.01 - ------------ "AFFILIATE" shall mean any corporation or other legal entity owning, either directly or indirectly, fifty percent (50) % or more of the voting capital shares of either party; or any corporation or other legal entity fifty percent (50) % of the voting capital stock of which is owned, either directly or indirectly, by either party; or any corporation or other legal entity fifty percent (50%) or more of the voting capital shares (or the equivalent) of which is owned, either directly or indirectly, by a corporation owning, either directly or indirectly, fifty percent (50%) or more of the voting capital shares (or the equivalent) of either party. Section 1.02 - ------------ "COMPLEX" shall mean a liposomal, or lipid-based, formulation of amphotericin B that was under joint development by the parties pursuant to the 1986 Agreement. Section 1.03 - ------------ "FIELD" shall mean manufacture, sale, shipment, storage or use of the COMPLEX. Section 1.04 - ------------ "FIRST COMMERCIAL SALE" shall mean the first time that COMPLEX is sold by TLC to a third party that is not an AFFILIATE or SUBLICENSEE. -2- Section 1.05 - ------------ "LICENSED PATENTS" shall mean ______. LICENSED PATENTS shall also include any issued patents, continuation applications or divisional applications based upon these patent applications, any other patent application or patent existing as of November 20, 1992 and constituting "Patent Rights" as defined in the 1986 AGREEMENT. Section 1.06 - ------------ "MEMORANDUM" shall mean the Memorandum of Intent executed by both parties on November 20, 1992. Section 1.07 - ------------ "NET SALES" shall mean the gross sales of COMPLEX by TLC, its AFFILIATES and SUBLICENSEES to third parties, less allowance for returned goods, all trade quantity and cash discounts actually allowed, as well as deductions for transportation charges, duties, taxes and retroactive price reductions. NET SALES shall not include COMPLEX transferred or sold by TLC to its AFFILIATES or SUBLICENSEES. Section 1.08 - ------------ "SUBLICENSEE" shall mean a third party, other than an AFFILIATE, granted a sublicense by TLC under Section 3.02 of this AGREEMENT of the license granted to TLC by B-MS under Section 3.01 of this AGREEMENT. Section 1.09 - ------------ "TECHNOLOGY" shall mean information relating to COMPLEX which is in the possession of B-MS on December 31, 1992, or which is subsequently developed by it during the manufacture, storage, analysis, use, sale or shipment of COMPLEX for TLC, including, but not limited to, formulae, manufacturing studies and protocols, engineering studies, standard operating procedures, inventions, results, information, drawings, notes on interactions with the Food and Drug Administration, data, analytical testing data and batch records relating to methods and process validations for the COMPLEX, know-how, trade secrets, patents and patent applications, owned or controlled by B-MS and the like relating to the manufacture, use, storage or shipment of the COMPLEX. TECHNOLOGY as used -3- herein includes, but is not limited to, know-how, trade secrets and patents and patent applications. TECHNOLOGY shall not include information relating to the manufacture of bulk amphotericin B. ARTICLE II- INITIATION AND REPRESENTATION ----------------------------------------- Section 2.01 - Initiation - ------------------------- (a) B-MS represents that it has transferred all TECHNOLOGY in its possession to TLC in accordance with the provisions of this AGREEMENT. Any additional TECHNOLOGY that may come into the possession of B-MS shall, upon reasonable request, be promptly transferred to TLC. (b) Within thirty (30) days of the execution of this AGREEMENT by the parties, B-MS shall assign to TLC all rights, title and interest to the patent application bearing U.S. Serial No. _____, and to any and all foreign patents and patent applications, and further United States continuing or divisional applications based upon these patent applications, which, as of the date hereof, consist of Canadian application ____, Japanese application ______ and European application ______. -4- Section 2.02 - Representations - ------------------------------ Each party represents and warrants that it is duly authorized to enter into this AGREEMENT and that it has no agreements in effect with third parties which would interfere with its performance required under this AGREEMENT. ARTICLE III - LICENSE AND ROYALTIES ----------------------------------- Section 3.01 - License - ---------------------- B-MS hereby grants to TLC an exclusive license to employ TECHNOLOGY for any purpose in the FIELD and a non-exclusive license for any purpose outside the FIELD. Section 3.02 - Sublicense - ------------------------- TLC shall have the right to grant sublicenses to the extent of its licenses under sections 3.01 to SUBLICENSEES and AFFILIATES without the consent of B-MS. Any such SUBLICENSEES and AFFILIATES will be bound by the requirements of confidentiality and use limitations to which TLC is obligated under this AGREEMENT. Section 3.03 - Royalties - ------------------------ (a) In consideration of the licenses granted to TLC by B-MS under Section 3.01 of this AGREEMENT, TLC agrees to pay B-MS a royalty equal to ____ percent of NET SALES of COMPLEX, such royalty to be paid, subject to subsection (g) below, for a period of ten (10) years on a country-by-country basis in each country in which COMPLEX shall be sold by TLC, its AFFILIATES or SUBLICENSEES, the ten year period commencing in a country with the FIRST COMMERCIAL SALE of COMPLEX by TLC, its AFFILIATES OR SUBLICENSEES. (b) In further consideration of the licenses granted by B-MS to TLC under Section 3.01, TLC agrees to pay B-MS an additional royalty equal to ____ percent of NET SALES of COMPLEX on a country-by-country basis in each country in which the COMPLEX shall be sold by TLC, its AFFILIATES or SUBLICENSEES, and in which a LICENSED PATENT is in effect covering the manufacture, use or sale of COMPLEX, for a period commencing with the FIRST COMMERCIAL SALE of -5- COMPLEX by TLC, its AFFILIATES or SUBLICENSEES in the country and ending on the day of expiration of the last-to-expire LICENSED PATENT in the country. However, if in the sole opinion of TLC, it must pay a royalty to a third party so as not, by its manufacture, use or sale of COMPLEX, to infringe a patent owned by the third party, TLC may deduct this royalty payment to the third party from the payment due B-MS under this subsection (b). The royalty payment due B-MS under this subsection (b) will not be reduced to less than ____ percent of NET SALES of COMPLEX. Payments due B-MS from TLC under subsections (b) and (c) of this Section shall be cumulative and additive. (c) TLC shall owe only one royalty payment to B-MS under subsection (b) of this Section for sale of a single unit of COMPLEX in a country, regardless of the number of LICENSED PATENTS with claims covering the manufacture, use or sale of the COMPLEX in that country. (d) TLC, its AFFILIATES and SUBLICENSEES shall keep true accounts of NET SALES of COMPLEX and of all sums payable to B-MS under the terms of this AGREEMENT. TLC shall deliver to B-MS written reports containing a statement of sales and NET SALES during the preceding calendar quarter, and showing the calculation of NET SALES. Such reports shall be sent by TLC to B-MS on or before the ninetieth calendar day following the end of each calendar quarter during which this AGREEMENT remains effective. At the same time, TLC shall pay B-MS the amount of royalties due on NET SALES during the preceding calendar quarter. (e) The royalty payments due by TLC to B-MS shall be in U.S. dollars. In the event that sales are made in a currency other than U.S. dollars, the sum of such sales shall be converted to U.S. dollars according to the exchange rate for the currency in which the sales were made, as listed in the Wall Street Journal for the last business day of the quarter in which the sales were made. (f) Any income tax, or other tax, which TLC is required to pay or withhold with respect to any payment due B-MS under the terms of this AGREEMENT shall be deducted from the amounts due B-MS, provided that in regard to any such deduction, TLC shall give B-MS reasonably necessary assistance in claiming -6- exemption therefrom, or full, or partial, refund thereof or tax credit therefor, and shall promptly provide B-MS with proper evidence as to the payment of such tax. (g) Notwithstanding subsections (a) and (b) above, on a country-by-country basis, TLC shall have no obligation to pay B-MS any royalty hereunder in respect of COMPLEX if, and for so long as, B-MS, or its AFFILIATES, pursuant to a separate agreement with TLC, markets COMPLEX in the country in question. Section 3.04 - Trademark - ------------------------ TLC intends to use "ABLC/(R)/" as a Trademark in connection with the COMPLEX. Accordingly, B-MS transfers to TLC all rights to use "ABLC/(R)/" in connection with the COMPLEX and reserves no rights for itself. ARTICLE IV - ACCESS AND CONSULTATION ------------------------------------ Section 4.01 - ------------ Upon the reasonable request of TLC, B-MS will make its employees who have been involved with the FIELD or with the COMPLEX available during regular business hours, and for a reasonable amount of time, for a period of two years following execution of this AGREEMENT to meet with TLC personnel from time-to- time, but only to the extent necessary to implement, pursuant to Section 2.01, the transfer of TECHNOLOGY, with reimbursement by TLC for out-of-pocket expenses incurred by B-MS. ARTICLE V - CONFIDENTIALITY --------------------------- Section 5.01 - Nondisclosure and Nonuse - --------------------------------------- (a) TLC will retain the TECHNOLOGY in confidence. TLC shall not disclose the TECHNOLOGY to any third party, except as provided for in subsection (b) of this Section 5.01. -7- (b) TLC may, consistent with the requirements of confidentiality imposed by this Article V, disclose TECHNOLOGY in the following instances, but only on a need-to-know basis: (1) to consultants who are obligated to retain such information in confidence pursuant to written agreements which incorporate by reference the terms of this Article V; (2) to AFFILIATES, potential or actual SUBLICENSEES or potential or actual suppliers of amphotericin B or other raw material necessary for the manufacture of ABLC who are obligated to maintain it in confidence pursuant to written agreements which incorporate by reference the terms of this Article V; (3) where as reasonably may be required or desirable in a patent application covering subject matter which is encompassed within this AGREEMENT; (4) where necessary to obtain government approval to manufacture and market the COMPLEX; and (5) where required by law, regulation or judicial order. Section 5.02 - Use of Confidential Information - ---------------------------------------------- TLC agrees not to use TECHNOLOGY obtained under the terms of this AGREEMENT for any purpose other than that contemplated by this AGREEMENT. Section 5.03 - Exceptions to Confidentiality Requirement - -------------------------------------------------------- Obligations of nondisclosure and nonuse arising under this Article shall not apply to information which : (a) is known to TLC or is in the public domain prior to its disclosure under the terms of this AGREEMENT or the 1986 AGREEMENT; -8- (b) is disclosed to TLC by a third party not under an obligation of confidentiality to a party to this AGREEMENT; (c) enters the public domain subsequent to the effective date of this AGREEMENT or becomes known to the public by some means other than the breach of this AGREEMENT; or (d) is obtained by TLC independently of its disclosure to TLC by B-MS under this AGREEMENT or the 1986 AGREEMENT. Section 5.04 - Purpose of Article - --------------------------------- Each party acknowledges that the restrictions contained in this article are necessary and reasonable to protect the legitimate interests of the parties, and that a violation of this Article by either party may result in irreparable harm to the other party. Section 5.05 - Term - ------------------- The provisions of this Article will continue for a period of ten (10) years commencing with the date of execution of this AGREEMENT. Section 5.06 - Accuracy - ----------------------- TECHNOLOGY disclosed by B-MS under the terms of this AGREEMENT shall be accurate to the best of its knowledge. However, there is no warranty as to the accuracy of TECHNOLOGY. B-MS does not represent that the use of TECHNOLOGY in the FIELD will not infringe upon the rights of a third party. ARTICLE VI - EXPIRATION AND TERMINATION --------------------------------------- Section 6.01 - Term and Expiration - ---------------------------------- Unless terminated by one of the parties under the terms of this AGREEMENT, the AGREEMENT may only be terminated by mutual consent of the parties. This AGREEMENT shall expire following TLC's last obligation to pay royalties on a country-by-country basis. Following such expiration, TLC shall -9- retain a paid-up, royalty-free, irrevocable, nonexclusive worldwide license, with the right to sublicense, to employ TECHNOLOGY for any purpose in the FIELD. Section 6.02 - Material Defaults - -------------------------------- (a) Neither party shall terminate this agreement except upon sixty (60) days prior written notice in the event of the other party's breach of a material portion of this AGREEMENT, if such breach is not remedied within sixty (60) days from the date of such notice. (b) Any failure to terminate this AGREEMENT by either party shall not be construed as a waiver by the aggrieved party of its right to terminate for future defaults or breaches. Section 6.03 - Bankruptcy - ------------------------- If, during the term of this AGREEMENT, either TLC or B-MS makes an assignment for the benefit of creditors, either party enters into liquidation, there is a receiver or trustee appointed for the property of either party, if proceedings for voluntary bankruptcy are instituted on behalf of either party, or either party is declared bankrupt by a court of competent jurisdiction, the other party may terminate this AGREEMENT immediately upon delivery of sufficient written notice to the bankrupt or insolvent party. Section 6.04 - Surviving Rights - ------------------------------- The provisions of Article V and Section 6.05 of this AGREEMENT shall survive the termination or expiration of this AGREEMENT. Section 6.05 - Effects of Termination - ------------------------------------- Termination of this AGREEMENT by either party shall not prejudice any cause of action or claim of TLC or B-MS arising under the terms of this AGREEMENT. ARTICLE VII - MISCELLANEOUS PROVISIONS --------------------------------------- Section 7.01 - B-MS Retention of TECHNOLOGY - -------------------------------------------- -10- Effective January 1, 1993, B-MS will cease use of the TECHNOLOGY in the FIELD, except for the production of the COMPLEX for TLC, or for purposes consistent with the MEMORANDUM or other agreement between TLC and B-MS effective January 1, 1993 or later. Section 7.02 - Entire Understanding - ----------------------------------- This AGREEMENT constitutes and contains the entire understanding and agreement of the parties and supersedes and replaces any and all prior negotiations, correspondence, understandings and agreements, whether oral or written, respecting the subject matter hereof. This Section 7.02 shall not, however, be of prejudice to the agreement dated as of August 25, 1993 between the parties, the Amphotericin B Supply Agreement dated as of January 1, 1993 between the parties, or to those provisions of the Memorandum of Intent dated November 20, 1992 between the parties to the extent that such provisions do not pertain to the subject matter hereof. The parties agree that paragraph 3 of the Memorandum shall survive, and shall continue to be in full force and effect. Section 7.03 - Amendment - ------------------------ This AGREEMENT shall not be amended, supplemented or otherwise modified except by a written agreement executed by both of the parties. Section 7.04 - Assignment - ------------------------- Neither party may assign this AGREEMENT without the written approval of the other party, except in connection with a party's sale to, merger or other consolidation with a third party of the entire business or a transfer to the third party of all of its business or assets to which this AGREEMENT relates. Such approval shall not unreasonably be withheld. Notwithstanding such approval, the assigning party shall be responsible to the other party, jointly or severally, with the assignee for any obligations arising under the terms of this AGREEMENT. Section 7.05 - Waiver - --------------------- No provisions of this AGREEMENT shall be waived by any act, omission or knowledge of a party, or its agents or employees, except by an instrument in writing signed by both parties -11- Section 7.06 - Governing Law - ---------------------------- This AGREEMENT shall be governed by the laws of the state of New Jersey and the decisions of the courts of New Jersey, without regard to conflict of laws. Section 7.07 - Restriction of Distribution of this AGREEMENT - ------------------------------------------------------------ This AGREEMENT shall not, except as otherwise required by law, regulation or judicial order, be distributed to persons other than those employees and agents of TLC and B-MS who shall have a need to know of its contents. However, either party may announce the existence of this AGREEMENT and the general terms contained therein. The parties shall consult with each other prior to any such release. Notwithstanding anything in this AGREEMENT to the contrary, either party may distribute this AGREEMENT and information received thereunder, in confidence to its business, financial or legal consultants, AFFILIATES and actual or potential SUBLICENSEES. Section 7.08 - Consent Not Unreasonably Withheld or Delayed - ----------------------------------------------------------- Where provision is made in this AGREEMENT for one party to secure the consent or approval of the other, such consent or approval shall not be unreasonably withheld or delayed. Section 7.09 - Construction - --------------------------- The captions appearing in this AGREEMENT are for reference purposes only, and are not to be considered for the purposes of interpreting or construing this AGREEMENT. Section 7.09 - Invalidity of Particular Provisions - -------------------------------------------------- If any provision of this AGREEMENT becomes unenforceable due to any rule of law, judicial order or administrative decision, all other provisions of this AGREEMENT shall remain in full force and effect. Section 7.10 - Force Majeure - ---------------------------- If the performance or obligation of either party of any part of this AGREEMENT is prevented, restricted, interfered with or delayed by reason of any cause beyond the control of the party under the obligation to perform, in the absence of conclusive evidence to the contrary, the party so affected shall, upon -12- sufficient written notice to the other party, be excused from such performance to the extent of such prevention, restriction, interference or delay, provided that the affected party has used its best efforts to avoid or remove such causes of non-performance. The affected party shall continue performance with the utmost dispatch whenever such causes are removed. Section 7.11 - Notices - ---------------------- Any notice or report required under this agreement of either party shall be given in writing by personal delivery or by registered or certified mail, return receipt requested and postage prepaid and shall, if sent by mail, be effective upon delivery to the following addresses: The Liposome Company, Inc. One Research Way Princeton Forrestal Center Princeton, NJ 08540 Attn: Chairman Bristol-Myers Squibb Company Route 206 and Province Line Road Princeton, NJ 08543 Attn: Mark L. Lee, Vice President, Licensing -13- IN WITNESS WHEREOF, the parties have caused this AGREEMENT to be executed in duplicate by their duly authorized representatives. BRISTOL-MYERS SQUIBB THE LIPOSOME COMPANY, INC. COMPANY By:_____________________ By:_______________________ Title:__________________ Title:____________________ Date:___________________ Date:_____________________ -14- EX-10.15 6 AMENDMENT LEASE AGREEMENT WITH PEREGRINE EXHIBIT 10-15 FIRST AMENDMENT TO LEASE AGREEMENT ---------------------------------- This First Lease Amendment (the "Amendment") is made this 29 day of October, 1993 between PEREGRINE INVESTMENT PARTNERS-I, a Pennsylvania limited partnership ("Landlord") and THE LIPOSOME COMPANY, INC., a Delaware corporation ("Tenant"). Landlord and Tenant entered into a Lease dated December 14, 1992 (the "Lease") pursuant to which Landlord agreed to lease and Tenant agreed to rent certain space situated in Arbor 600, 600 College Road East, Princeton Forrestal Center, Plainsboro, New Jersey, as more particularly defined in the Lease (the "Premises"). Landlord and Tenant have agreed to amend the Lease in accordance with the terms set forth at length below. NOW, THEREFORE, intending to be legally bound hereby, the Landlord and Tenant agree as follows: 1. Except as otherwise expressly provided herein, the terms defined in the Lease shall have the same meaning in this Amendment as in the Lease. 2. Landlord will make available for occupancy by Tenant, as soon as possible following submission of construction drawings by Tenant, but no more than 60 days after submission of construction drawings, that portion of the fourth floor of the Building shown on Exhibit A as the "Additional Premises". Tenant may occupy the Additional Premises as soon as a Temporary Certificate of Occupancy is received for the Additional Premises. 3. Effective upon the sooner of the date of occupancy of the Additional Premises or April 1, 1994, the Premises shall be changed to include the Additional Premises, the Rentable Area shall be increased by 7,568 square feet and Tenant's Allocated Share shall be 12.01%. 4. Effective April 1, 1994, Basic Rent on the Premises shall be increased as follows for the following periods: April 1, 1994 to March 31, 1996: $12,298.00 per month for each month in the period, payable in accordance with the Lease. April 1, 1996 to March 31, 1998: $12,928.67 per month for each month in the period, payable in accordance with the Lease. April 1, 1998 to Lease Expiration: $14,505.33 per month for each month in the period, payable in accordance with the Lease. Nothing herein is meant to change Tenant's right to terminate this Lease at the end of the fifth year of the initial lease term in accordance with the notice provisions in paragraph 2 of the Lease. For purposes of establishing the Lease Expiration Date, and the date on which the Lease may be terminated, the actual Lease Commencement Date is established as April 1, 1993. 1 5. Tenant Electric and Additional Rent on the Additional Premises shall be paid in accordance with the provisions of the Lease as amended hereby. 6. The Additional Premises shall be finished, at Landlord's expense, in accordance with the plan submitted by Tenant and attached hereto as Exhibit A, complete with the same finishes and electric as Tenant currently has in its existing Premises. Tenant to pay for any unusual requirements such as floor reinforcing, and any changes made after final construction documents are submitted to Landlord. 7. Effective upon execution of this Amendment paragraph 24(s) of the Lease is amended by substituting "approximately 7,500 contiguous rentable square feet anywhere in the Building", in place of the "Expansion Space" now set forth in Exhibit A-1 to the Lease and substituting "between October 15, 1994 and October 15, 1996" in place of "not earlier than one (1) year following the Commencement Date nor later than three (3) years following the Commencement Date". Landlord's obligation shall be unchanged with respect to the same. 8. Except as expressly amended herein, the terms and conditions of the Lease shall remain in full force and effect and Tenant and Landlord expressly ratify and confirm those terms and provisions. IN WITNESS WHEREOF, the parties have set their hands as of the date first above referenced. LANDLORD: PEREGRINE INVESTMENT PARTNERS-I, a Pennsylvania Limited Partnership TENANT: THE LIPOSOME COMPANY, INC. 2 EX-10.16 7 LEASE AGREEMENT WITH ONE RESEARCH WAY PARTNERS EXHIBIT 10-16 LEASE AGREEMENT BETWEEN ONE RESEARCH WAY PARTNERS (LANDLORD) -AND- LIPOSOME COMPANY, INC. (TENANT) DATED AS OF: JANUARY 1, 1995 PREMISES: ONE RESEARCH WAY PLAINSBORO TOWNSHIP, MIDDLESEX COUNTY, NEW JERSEY TABLE OF CONTENTS
Article 1 - Demise 1 Article 2 - Term 1 Article 3 - Conditions of Premises 1 Article 4 - Rent 2 Article 5 - Use of Premises 3 Article 6 - Additional Rent; Net Lease; Repair and Maintenance 5 Article 7 - Rules and Regulations 8 Article 8 - Common Area 8 Article 9 - Alterations, etc. 8 Article 10 - Insurance 10 Article 11 - Indemnification 12 Article 12 - Fire 12 Article 13 - Eminent Domain 15 Article 14 - Assignment or Subletting 16 Article 15 - Entry by Landlord 18 Article 16 - Inspections by Prospective Purchaser and Tenants and by Lender 19 Article 17 - Surrender 19 Article 18 - Default 20 Article 19 - Bankruptcy 22 Article 20 - Quiet Enjoyment 23 Article 21 - Consent by Landlord 23 Article 22 - Subordination 23 Article 23 - Mechanics' Liens 24 Article 24 - Notices 25 Article 25 - Waiver of Trial by Jury 25 Article 26 - No other Waiver or Modifications 25 Article 27 - Curing Tenant's Defaults 25 Article 28 - Estoppel Certificate 26 Article 29 - Parties Bound 26 Article 30 - Force Majeure 27 Article 31 - Parking 27 Article 32 - Definition of Landlord 27 Article 33 - Taxes on Tenant's Property 27 Article 34 - Environmental Matters 28 Article 35 - Option to Renew 30 Article 36 - Right of First Offer to Purchase 32 Article 37 - Security 33 Article 38 - General Provisions 34
THIS LEASE AGREEMENT (herein called "Lease") made and executed as of the 1st day of January, 1995 by and between ONE RESEARCH WAY PARTNERS, a New Jersey limited partnership, having an office at c/o Keller, Dodds & Woodworth, Inc., 103 Carnegie Center, Princeton, New Jersey 08543, (herein called the ("Landlord"), of the one part, and THE LIPOSOME COMPANY, INC., a Delaware corporation, having an office at 1 Research Way, Princeton Forrestal Center, Princeton, New Jersey, 08540, (herein called the "Tenant"), of the other part. WITNESSETH ---------- ARTICLE l - DEMISE ------ 1.1 - That in consideration of the rents and covenants herein set forth, Landlord hereby leases to Tenant, and Tenant hereby rents from Landlord premises containing approximately 49,421 gross rentable square feet, (hereinafter "Premises"), as shown outlined in red on Exhibit "A-1", a copy of which is attached hereto, in the building located at One Research Way, Plainsboro Township, Middlesex County, State of New Jersey (hereinafter "Building") which is situated on that certain parcel of land (said parcel of land together with the Premises, Building and all other improvements located thereon, are hereinafter referred to as the "Parcel") more particularly described in Exhibit "A-2" attached hereto. The gross rentable area of the Building is approximately 49,421 square feet and the Premises constitutes 100% (hereinafter "Tenant's Percentage") of said gross rentable area. This Lease shall be for the term, upon the rentals and subject to the terms and conditions set forth in this Lease and the Exhibits attached hereto. 1.2 - The demise of the Parcel hereunder is subject to the terms and conditions of that certain Ground Lease dated January 21, 1980, between The Trustees of Princeton University, as Ground Lessor and Bowers Development Corporation as Ground Lessee, which was assigned to Landlord on October 11, 1984, as that Ground Lease has been amended by the letter of The Trustees of Princeton University dated ____________ ___, 1994. ARTICLE 2 - TERM ---- 2.1 - The term of this Lease shall commence on the date of this Lease (hereinafter "Commencement Date"). The term shall be for a period of twelve (12) years, ending on the day immediately preceding the twelfth (12th) anniversary of this Lease, unless extended as provided for elsewhere herein. ARTICLE 3 - CONDITION OF PREMISES --------------------- 3.1 - Tenant had possession of the Premises for a period of time prior to the commencement of this Lease and therefore accepts the Premises in its "as-is" condition, except as set forth on Schedule B, which sets forth those repairs and replacements which shall be commenced by Landlord immediately upon the execution of this Lease. Landlord shall have no obligation to (i) alter, improve, decorate or otherwise prepare the Premises for Tenant's occupancy, (ii) provide Tenant with any tenant improvement allowance, or (iii) obtain a Certificate of Occupancy or other permits or approvals which may be required for Tenant's occupancy of the Premises. Tenant acknowledges that the Premises are leased to Tenant "as is" on the date hereof; and Landlord acknowledges that Tenant has occupied portions of the Premises for some time and has added to it substantial structural changes at Tenant's own expense, such as a loading dock, chemical storage facilities, laboratories, and the like. Except as expressly set forth herein, neither Landlord nor Landlord's agents have made any representations or promises with respect to the physical condition of the Building, the land upon which it is erected or the Premises. Tenant has inspected the Premises and is thoroughly acquainted with their condition, and acknowledges that the taking of possession of the Premises by Tenant shall be conclusive evidence that the Premises were in good and satisfactory condition at the time such possession was so taken. 3.2 - Tenant may at its own expense select and employ its own contractors for work within the Premises and on the Parcel. Such work shall include, but shall not be limited to the installation and renovation from time to time, of Tenant's laboratory facilities (hereinafter "Laboratory Areas"), Tenant's manufacturing facility (hereinafter "Manufacturing Area"), (all such work hereinafter called "Tenant's Work"), provided (i) Tenant advises Landlord in writing of its intention to do so prior to commencement of any such work which shall include a list of all proposed contractors, and (ii) Landlord has not indicated to Tenant in writing that it objects to any such contractors or sub-contractors. Any such objection by Landlord must be raised within ten (10) days of its receipt of notice of such commencement, and must not be unreasonable, nor shall same be unreasonably withheld or conditioned. In no event shall any contractors and sub- contractors performing Tenant's Work file any mechanics lien or contractors lien against the Building and/or Parcel of Landlord and Tenant hereby agrees to protect, defend, indemnify and save Landlord harmless of and from any damages, costs or expenses incurred by Landlord in connection with such mechanics liens and contractors liens. 3.3 - Tenant and its contractors shall be responsible for transportation, safekeeping and storage of materials and equipment used in the performance of Tenant's Work and for the removal of waste and debris resulting from the performance of Tenant's Work and Landlord shall not be responsible for the work of Tenant's contractors. Prior to commencement of Tenant's Work, Tenant shall obtain and maintain, at its expense, Workmen's Compensation and Bodily Injury and Property Damage Public Liability Insurance and other policies of insurance which include coverage equivalent to so called "Builder's Risk" Insurance (all such insurance shall conform to the requirements of Article 12 hereof) and shall submit certificates as evidence thereof to Landlord. ARTICLE 4 - RENT ---- 4.1 - Landlord reserves and Tenant covenants to pay to Landlord without demand, setoff or abatement at 103 Carnegie Center, Princeton, New Jersey 08543, or at such other place as may hereafter be designated in writing by Landlord, on the days and in the manner herein prescribed for the payment thereof guaranteed Minimum Rent and Additional Rent (as hereinafter defined) for the Premises as set forth in this Article 4 and in Article 6. 4.2 - Tenant, covenants to pay a fixed guaranteed minimum annual rent (hereinafter "Minimum Rent"), payable in monthly installments in advance of the first day of each month commencing on the Commencement Date, as follows:
Period Sq. Ft. Rental Annual Rental Monthly Rental - ---------------------------- ----------------------------- 1/1/95 - $11.50 (triple net) $568,341.50 $47,361.79 12/31/01 1/1/02 - $14.00 (triple net) $691,894.00 $57,657.83 12/31/06
4.3 - In addition to the Minimum Rent stipulated herein, Tenant covenants and agrees to pay to Landlord as additional rent (hereinafter "Additional Rent") all other sums and charges which are, pursuant to the terms of this Lease, to be paid by the Tenant. Except as otherwise specifically provided in this Lease, Additional Rent shall be due and payable on the first day of the month but not less than ten (10) days following the date on which Tenant is given notice of Additional Rent due. 4.4 - The term "lease year" means each twelve (12) month period during the term hereof, the first lease year being the period beginning on the date when the first monthly installment of Minimum Rent is to be paid in advance and ending at the conclusion of that twelve (12) month period. The last lease year means the period beginning on the first day of the twelve (12) month period at the end of which this Lease expires and ending on the date that this Lease shall terminate. 4.5 - In the event Tenant shall fail to pay Minimum Rent and/or Additional Rent when due, and such failure shall continue for 10 days after notice by Landlord to Tenant then, in addition to the Landlord's rights as contained in Article 18 hereof, interest shall accrue thereon at the rate equal to the Prime Rate as published in the Wall Street Journal from time to time plus two percent (2%). ARTICLE 5 - USE OF PREMISES --------------- 5.1 - Tenant covenants and agrees to use and occupy the entire Premises solely for the purpose of the manufacture of pharmaceuticals, as a research laboratory and general office use, together with such other uses as are permitted by and consistent with the applicable private use restrictions affecting the corporate park of which the Building is a part and for no other purpose, and such use and occupancy shall be in compliance with all applicable laws, ordinances, requirements and regulations of any governmental authority having jurisdiction, and also in compliance with Landlord's Rules and Regulations as set forth in Exhibit "D" hereto. -3- 5.2 - Tenant acknowledges that there are federal, state and local laws, regulations and guidelines, and that additional laws, regulations and guidelines may hereafter be enacted relating to or affecting the Parcel and concerning the impact on the environment of construction, land use, the maintenance and operation of structures, and the conduct of business. Tenant will not cause or permit to be caused, any act or practice, by negligence, omission or otherwise, that would adversely affect the environment or that would violate any of said laws, regulations or guidelines. Any violation of this covenant shall be an event of default pursuant to Article 18 hereof. Tenant shall be solely responsible to make any changes in the Premises and/or Parcel pursuant to said laws, regulations and guidelines and agrees to protect, defend, indemnify and save Landlord harmless from any damages, costs or expenses incurred by Landlord in connection with Tenant's obligations under this Paragraph 5.2. 5.3 - It is understood and agreed that Tenant shall not place a load on any floor of the Premises exceeding a floor load which such floor was designed to carry and which is allowed by law. 5.4 - Tenant shall not place any obstructions, refuse or debris of any kind which would tend to obstruct the areas in front of or around the Building. Tenant shall keep the Premises in a neat and clean condition, and shall cause all garbage and refuse to be removed. 5.5 - Tenant shall not suffer or permit the Premises, or any part thereof to be used in any manner which would in any way, (i) violate any of the provisions of any grant, lease or mortgage to which this Lease is subordinate, provided that any such provision is not inconsistent with the rights acquired by Tenant under this Lease, (ii) violate any laws or requirements of public authorities, (iii) because of a change in the current use of the Premises, make void or voidable any fire or liability insurance policy then in force with respect to the Parcel, (iv) make unobtainable or extraordinarily difficult to obtain (from reputable insurance companies authorized to do business in New Jersey at standard rates) any fire insurance with extended coverage, or liability, or boiler or other insurance which may be reasonably required to be furnished by Landlord under the terms of any lease or any mortgage to which this lease is subordinate, (v) cause physical damage to the Parcel or any part thereof, or constitute a nuisance therein, (vi) reasonably be perceived to impair the appearance, character or reputation of the Parcel. The provisions of this Section 5.5 and the application thereof, shall not be deemed to be limited in any way to or by the provisions of any of the articles of this Lease or any of the Rules and Regulations referred to in this Lease except as may herein be expressly otherwise provided. 5.6 - If any governmental license or permit shall be required for the proper and lawful conduct of Tenant's business in the Premises, or any part thereof, then Tenant, at its expense, shall duly procure and thereafter maintain such license or permit and Tenant shall at all times comply with the terms and conditions of each such license or permit. 5.7 - In addition to the other uses specified herein, Tenant may continue to maintain on the parcel the five (5) modular units (the "Modular Units") currently existing thereon, until -4- September 1, 1996, at which time the Modular Units shall be removed from the Parcel at Tenant's expense and the portion of the Parcel where the Modular Units were located shall be restored to its condition before their installation. The Modular Units shall be deemed a part of the Premises and the use and occupancy thereof shall be in accordance with the provisions of this Lease. Tenant's use, occupancy, maintenance and removal of the Modular Units shall be in full compliance with (i) all applicable laws, ordinances, requirements and regulations, (ii) the terms and provisions of the Ground Lease as defined in Section 1.2, and (ii) the Rules and Regulations. Tenant shall pay Landlord, as Additional Rent, and in consideration of Landlord's willingness to permit the Modular Units to remain on the parcel until September 1, 1996, the following amounts (the "Modular Rent") on the dates indicated below: (i) On March 1, 1995..................$4,800 (ii) On September 1, 1995.............. 7,500 (iii) On March 1, 1996..................10,002 If Tenant removes the Modular Units and restores the Parcel prior to September 1, 1996, then as of the date of the completion of such restoration (the "Modular Termination Date") Tenant's obligation to pay the Modular Rent shall terminate, and if no Event of Default has then occurred or is then continuing, Landlord shall return to Tenant the proportional amount of any payment of Modular Rent which relates to the number of whole (but not partial) months remaining after the Modular Termination Date for which Modular Rent was paid. If Tenant shall fail to remove the Modular Units before the close of the business day on September 1, 1996, time being of the essence, an Event of Default shall be deemed to have occurred and, in addition to all other rights and remedies which Landlord may have under this Lease, Tenant shall pay Landlord on September 2, 1996, the amount of $250,000; provided, however, that payment of this amount shall not be deemed to cure the occurrence of an Event of Default or to allow Tenant to extend the time that the Modular Units may remain on the Parcel. ARTICLE 6 - ADDITIONAL RENT; NET LEASE; REPAIR AND MAINTENANCE -------------------------------------------------- 6.1 - Tenant shall pay Landlord or others, as specified and at times set forth in this Lease, the amount of all expenses which Landlord incurs of every kind and nature which Landlord shall pay or become obligated to pay because of the ownership of the Parcel, but only those which are necessary and appropriate in connection with the efficient and economical operation of the Parcel, including, but not limited to insurance premiums for policies of insurance specified in Article 10 hereinafter, utility charges (which are to be paid directly to others), and Real Estate Taxes, it being the intention of the parties hereto that the Rent to be received by Landlord shall be absolutely net of all expenses. It is understood by the parties hereto that Tenant has herein obligated itself to pay directly all utilities, and to have full responsibility to -5- maintain the Premises. As such, Landlord's responsibility to perform duties with respect to the Parcel, the Premises and the Building are intended to be limited exclusively to those obligations of Landlord expressly provided in this Lease. Tenant's reimbursement obligations shall not include (a) debt service payment of principal, interest, points, origination fees, penalties or any other cost or expense in connection with any loan obtained by Landlord, repayment of which is secured by the Leased Premises or any portion thereof, (b) management, legal, accounting and administrative expenses of Landlord, or (c) those repair obligations of Landlord expressly set forth in this Lease. Tenant shall have the right, upon giving two (2) weeks prior written notice to Landlord, to make reasonable inspections of Landlord's books and records related solely to the items of Additional Rent so as to verify the sums due from Tenant as Additional Rent. 6.2 - Tenant, at Tenant's sole cost and expense, shall maintain the Premises, including all interior and exterior areas, in good order, condition and repair and shall operate the Premises. Tenant's costs shall include, but are not limited to, costs and expenses for the following: gardening and landscaping; utilities, water and sewage charges; maintenance of signs; premiums for liability, property damage, fire and other types of casualty insurance and worker's compensation insurance; all property taxes and assessments levied on or attributable to the Premises; fees for required licenses and permits; routine maintenance and repair of roof membrane, flashings, gutters, downspouts, roof drains, skylights and waterproofing; maintenance of paving (including sweeping, sealing, striping, repairing, resurfacing, and repaving); general maintenance; painting; lighting; cleaning; refuse removal; security; snow and ice removal; management and supervision, and, similar items. Tenant shall neither commit waste nor damage the Premises and shall throughout the Term, at Tenant's sole cost and expense, assume all responsibility and obligation for the physical condition of the Premises and its sidewalks, curbs, parking areas, utilities and grounds, and shall make all necessary repairs and replacements thereto, interior and exterior, structural and non-structural, ordinary and extraordinary and foreseen and unforeseen. If any portion of the Premises or any system or equipment in the Premises which Tenant is obligated to repair cannot be fully repaired or restored, Tenant shall promptly replace such portion of the Premises or system or equipment in the Premises, regardless of whether the benefit of such replacement extends beyond the Lease term. All repairs and replacements of a structural nature, except emergency repairs and replacements, shall be subject to the prior approval of Landlord and shall be constructed in a good and workmanlike manner. Tenant shall be entitled, but shall not be required, to make repairs and replacements from time to time which result in a level of quality which is consistent with the Restoration Specifications (such level of quality referred to hereinafter as "Building Standard"), dated December 27, 1993, by George Geiger & Associates, Inc., a copy of which is attached hereto as Exhibit "C". 6.3 - Landlord's sole repair obligation, which Landlord hereby undertakes, shall be limited to any reasonably required repair the building structure (which is defined as the footings and foundations, supporting columns and load bearing exterior walls). Landlord's obligations shall not apply to items installed by Tenant or Tenant's contractors or any repair and/or -6- replacement caused by acts or omissions of Tenant, its agents, employees, contractors or invitees. 6.4 - Tenant shall pay, directly to the appropriate supplier, the cost of all natural gas, heat, light, power, sewer service, telephone, water, refuse disposal and other utilities and services supplied to the Premises and shall be responsible for maintaining all utility equipment in operating order. 6.5 - Tenant shall pay Landlord, on a quarterly basis all real estate taxes and other taxes (except as set forth below), assessments, governmental charges, fees and levies, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind and nature for public improvements, services or benefits imposed upon or otherwise relating to the Premises and all other fees or taxes which may be levied in lieu of any of the above, which are assessed, levied, confirmed, imposed or become a lien upon the Premises or become payable during the Term (collectively "Real Property Taxes"). Upon receipt of any tax bill from any taxing authority, Landlord shall forward a copy of any such tax bill to Tenant, together with any communication as to the date on which such payment is due. Payment of Real Property Taxes shall be due and payable by Tenant ten (10) days before such Real Property Taxes shall become due to the appropriate taxing authority. Real Property Taxes shall also include reasonable expenses of tax abatement or other proceedings contesting assessments or levies, it being understood that Landlord shall have the first right to contest any tax assessment. If Landlord chooses not to contest such assessment, Tenant shall be entitled to contest such assessment, at Tenant's own expense, in which event Landlord agrees to execute all forms which it is reasonably requested by Tenant to execute in connection with such contest, and Landlord agrees not to take any actions which are contrary to Tenant's contest of such assessment. If the Real Property Taxes in the jurisdiction in which the Premises located are payable on the basis of a fiscal/tax year other than a calendar year, for the purposes of this Lease, Taxes shall be computed on a calendar year basis, based upon the portion of each fiscal/tax year falling within the calendar year. Nothing contained in this Lease shall require Tenant to pay any franchise, corporate, estate, sales, use, inheritance, successions or transfer tax of Landlord, or any income, profits or revenue tax or charge upon the income of Landlord; provided, however, that if under the laws of the United States Government or the state in which the Premises are located, or any political subdivision thereof, a tax or excise on rent or any other tax, however described, is levied or assessed by any political body against Landlord on account of Rent, Tenant shall pay such tax or excise on Rent. 6.6 - Tenant acknowledges that during the term of this Lease, the Premises shall be under Tenant's sole custody and control, and Tenant agrees to use and occupy the Premises as Tenant is herein given the right to use at Tenant's own risk; and, except as otherwise set forth herein, Landlord shall have no responsibility or liabilities for any loss of or damage to any of Tenant's property or leasehold improvements, etc. (including, without limitation, Tenant`s Property), or for any inconvenience, annoyance, interruption or injury to business arising from Landlord's making any repairs or changes which Landlord is permitted by this Lease, or required by law, to make in or to any portion of the Premises, or in or to the fixtures, equipment or appurtenances thereof. -7- 6.7 - If Tenant fails to make any payment of Real Property Taxes by the due date thereof, Landlord shall have the right to require Tenant to pay Landlord a sum equal to one-twelfth (1/12) of the annual Real Property Taxes payable by Tenant under this Lease, together with each monthly payment of Base Rent; provided however, the aforesaid provision shall not apply to the first occurrence in any calendar year provided that such payment is made within ten (10) days after the due date. If Tenant fails to pay, either to Landlord or directly to any insurer, any insurance premium for which Tenant is responsible by its due date, Landlord shall have the right to collect from Tenant for such insurance a sum equal to one-twelfth (1/12) of the annual insurance premiums payable by Tenant under this Lease, together with each monthly payment of Minimum Rent; provided however, the aforesaid provision shall not apply to the first occurrence in any calendar year provided that such payment is made within ten (10) days after the due date. Landlord shall hold such payments in a non- interest bearing impound account, and shall make all payments of Real Property Taxes and/or insurance by the date on which such payments are due. If unknown, Landlord shall reasonably estimate the amount of Real Property Taxes and/or insurance premiums when due, based upon the immediately prior bills and the advice of the tax collecting authority or the insurance company representatives for such estimated payment. Tenant shall pay any deficiency of funds in the impound account to Landlord upon written request. If Tenant defaults under this Lease, Landlord may apply any funds in the impound account to any obligation then due under this Lease. In the event the estimated payments exceed the actual annual payments of Real Property Taxes and insurance, Landlord shall reimburse Tenant any such excess. Landlord shall, upon the request of Tenant, provide Tenant with copies of tax and/or insurance bills and evidence of payment of same. ARTICLE 7 - RULES AND REGULATIONS --------------------- 7.1 - Tenant covenants and agrees to faithfully observe and comply with the "Rules and Regulations" affixed to this lease and made a part hereof as Exhibit "E", as well as any other and further reasonable Rules and Regulations which Landlord may hereafter make. ARTICLE 8 - COMMON AREA ----------- 8.1 - To the extent that the Ground Lease as defined in Section 1.2, in its form as of the date of this Lease, a copy of which has been provided to Tenant by Landlord, provides rights to any person or entity to the use of any driveways, footways or other portions of the Parcel, excluding the Building, on which the Premises is located (the "Common Area"), Tenant's right to the use of such areas, if any, shall be deemed non-exclusive and subject to the rights of such other parties in and to the Common Area. ARTICLE 9 - ALTERATIONS ETC. ---------------- 9.1 - Tenant shall make non-structural alterations, decorations, installations, additions or improvements (hereinafter "Tenant Changes") in or to the Premises up to $20,000 in cost. Tenant shall, however, furnish Landlord with outline plans and specifications for such minor Tenant Changes prior to the commencement of the work. Tenant shall make no Tenant Changes in or to the Premises exceeding $20,000 in cost without in each instance obtaining the -8- Landlord's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed and then only by contractors or mechanics subject to Landlord's reasonable approval, and in conformance with detailed plans and specifications which have been previously submitted to the Landlord and which are subject to the Landlord's approval, which approval shall not be unreasonably withheld, conditioned or delayed. However, all Tenant Changes which are structural in character or which affect the mechanical or HVAC systems must receive Landlord's prior written consent whether the cost thereof is more or less than $20,000. All Tenant Changes shall be done at Tenant's cost and expense. All Tenant Changes upon the Premises (including those Tenant Changes which have already been made pursuant to the prior Lease between Landlord and Tenant for the Premises), made by either party (excepting only Tenant Changes regarding the Laboratory Area and the Manufacturing Area, to be restored in accordance with the provisions of Section 9.5 and 17.2, and Tenant's equipment and movable trade fixtures) shall, unless Landlord shall elect otherwise, become the property of Landlord, and shall remain upon, and be surrendered with, the Premises as a part thereof at the end of the term. Any election by the Landlord not to have Tenant Changes remain upon the Premises either (a) at the end of the lease term, or any renewal or renewals thereof, or (b) upon the any early termination of the lease term, shall be made by giving written notice of such election to Tenant not less than (a) thirty (30) days prior to the expiration of the lease term, or (b) within thirty (30) days after any other termination of this Lease. The foregoing notice requirements shall not apply to any restoration obligations of Tenant regarding the Laboratory Area and the Manufacturing Area, which shall be governed by the provisions of Section 9.5 and 17.2. 9.2 - Tenant agrees that any Tenant Changes shall be done in a good and workmanlike manner and in conformity with all laws, ordinances and regulations of all public authorities having jurisdiction. 9.3 - Tenant agrees that it will procure all necessary permits before making any Tenant Changes. Landlord agrees that, without cost or expense to Landlord, it will cooperate with Tenant in obtaining such permits. Tenant agrees to pay promptly when due the entire cost of any work done by or for Tenant upon the Premises so that the Premises shall at all times be free of liens for labor or materials. Tenant agrees to save and indemnify Landlord from any and all injury, loss, claims, or damages to any person or property occasioned by or in connection with any Tenant Changes. 9.4 - Any such Tenant Changes shall be performed in such manner as not to delay or impose any additional expense upon Landlord in the maintenance or operation of the Building. Prior to the commencement of Tenant Changes, Tenant shall obtain and maintain at its expense Workmen's Compensation Insurance and Bodily Injury and Property Damage Public Liability Insurance and other policies of insurance with coverages equivalent to so called "Builders Risk" Insurance (all such insurance shall conform to the requirements of Article 10 hereof) and shall submit certificates as evidence thereof to Landlord. 9.5 - At the expiration of the term of this Lease or any renewal thereof, Tenant shall at its sole cost and expense (i) remove so many of Tenant fixtures and restore so much of the -9- Premises to its condition prior to the installation of Tenant's fixtures as Landlord designates, and (ii) at Landlord's election, restore all or part of the Laboratory Area and Manufacturing Area to Building Standard office areas in accordance with the specifications set forth in Exhibit "C" hereto. Tenant shall not be obligated to leave any of its laboratory or manufacturing equipment or fixtures, but may agree to do so upon the request of Landlord. This Section 9.5 shall survive the expiration or sooner termination of this Lease and shall be interpreted in conjunction with Section 17.2 hereinafter which is intended to limit Landlord's election as set forth in this Section 9.5. ARTICLE 10 - INSURANCE --------- 10.1 - Tenant covenants to provide at Tenant's cost and expense on or before the Commencement Date, and to keep in full force and effect during the entire term and so long thereafter as Tenant, or anyone claiming by, through or under Tenant, shall occupy the Premises, insurance coverage as follows: (a) Comprehensive Public Liability Insurance with contractual liability endorsements with respect to the Premises and the business of Tenant in which Tenant shall be adequately covered under limits of liability of not less than a combined single limit of $5,000,000 for death, bodily injury and property damage. (b) Fire and Extended Coverage, Vandalism, Malicious Mischief and Special Extended Coverage Insurance in an amount adequate to cover the cost of replacement of all personal property, decorations, trade fixtures, furnishings, equipment in the Premises, vaults, safes and all contents therein. Except as otherwise provided elsewhere in this Lease, Landlord shall not be liable for any damage to such property of Tenant by fire or other peril includable in the coverage afforded by the standard form of fire insurance policy with extended coverage endorsement attached (whether or not such coverage is in effect), no matter how caused, it being understood that the Tenant will look solely to its insurer for reimbursement. (c) Worker's Compensation Insurance covering all persons employed by Tenant, including provisions in the Worker's Compensation coverage that provide that the carrier permit waiver of subrogation against Landlord. Tenant will use commercially reasonable efforts to have its Worker's Compensation carrier provide this endorsement to its coverage. (Landlord shall carry similar coverage for its own account and shall use commercially reasonable efforts to obtain coverage permitting waiver of subrogation against Tenant.) (d) Upon demand, Tenant shall furnish Landlord, at Tenant's expense, with such increased amounts of existing insurance, and such other insurance coverage in such limits, as Landlord may reasonably require and such other hazard insurance as the nature and condition of the Premises may require -10- in the reasonable judgment of Landlord, to afford Landlord and Landlord's mortgagee adequate protection for said risks. (e) Policies of insurance covering loss of or damage to the Premises in the full amount of its replacement value , insuring Landlord and any mortgagee, as their interests may appear, and naming Landlord or Landlord's mortgagee (as may be designated by Landlord) as loss payee. Such policy shall contain an Inflation Guard Endorsement and shall provide protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, special extended perils (all risk), sprinkler leakage and any other perils which Landlord deems reasonably necessary. During the Lease Term, Tenant shall also maintain a rental income insurance policy, with loss payable to Landlord, in an amount equal to one year's Base Rent, plus estimated Real Property Taxes, operating expenses and insurance premiums. Landlord shall have the right to require Tenant to obtain flood and earthquake insurance at Landlord's discretion or if required by any lender holding a security interest in the Premises. Tenant acknowledges that Landlord shall not obtain insurance for Tenant's fixtures or equipment or building improvements installed by Tenant on the Premises. Tenant shall be liable for the payment of any deductible amount under Landlord's or Tenant's insurance policies maintained pursuant to this Section, in an amount not be exceed Five Thousand Dollars ($5,000.00). Tenant shall not do or permit anything to be done which invalidates any such insurance policies. 10.2 - All of the aforesaid insurance shall be written by one or more responsible insurance companies satisfactory to Landlord and in form satisfactory to Landlord and with carriers having at least a Best's A+ rating. The Comprehensive Public Liability insurance shall contain endorsements substantially as follows: "It is understood and agreed that the insurer will give to One Research Way Partners (or any successor Landlord) c/o Keller, Dodds & Woodworth, Inc., 103 Carnegie Center, Princeton, New Jersey 08543, ten (10) days prior written notice of cancellation of this policy." 10.3 - Tenant shall be solely responsible for payment of premium and Landlord (or its designee) shall not be required to pay any premium for such insurance. Tenant shall use best efforts to deliver to Landlord at least fifteen (15) days prior to the time such insurance is first required to be carried by Tenant, and thereafter at least fifteen (15) days prior to the expiration of such policy, either a duplicate original or a certificate it being the intention of the parties hereto that the insurance required under the terms hereof shall be continuous during the entire term of this lease and in form acceptable to Landlord and any other period of time during which, pursuant to the term hereof, said insurance is required. Tenant shall promptly notify Landlord of any material change in its liability policy, which change materially alters the coverages afforded Landlord herein. -11- 10.4 - Tenant agrees, at its own cost and expense, to comply with all of the rules and regulations of the Fire Insurance Rating organization having jurisdiction and any similar body. If, at any time or from time to time, as a result of or in connection with any failure by Tenant to comply with the foregoing sentence or any act of omission or commission by Tenant, its employees, agents, contractors or licensees, or as a result of or in connection with the use to which the premises are put (notwithstanding that such use may be for the purposes hereinbefore permitted or that such use may have been consented to by Landlord), the fire insurance rate(s) applicable to the Premises or the Building in which same are located shall be higher than that which would be applicable for the least hazardous type of occupancy legally permitted therein, Tenant agrees that it will pay to Landlord as Additional Rent, such portion of the premiums for all fire insurance policies in force with respect to the aforesaid properties and the contents of any occupant thereof as shall be attributable to such higher rate(s). 10.5 - Landlord makes no representation that the limits of liability specified to be carried by Tenant or Landlord under the terms of this lease are adequate to protect Tenant against Tenant's undertaking under this Article 10, and in the event Tenant believes that any such insurance coverage called for under this Lease is insufficient, Tenant shall provide, at its own expense, such additional insurance as Tenant deems adequate. 10.6 - The liability insurance obtained by Tenant under this Paragraph shall (i) be primary and non-contributing and (ii) contain cross-liability endorsements. The amount and coverage of such insurance shall not limit Tenant's liability nor relieve Tenant of any other obligation under this Lease. Landlord may also obtain comprehensive public liability insurance, provided that such insurance obtained by Landlord shall not be contributory and shall not provide primary insurance. ARTICLE 11 - INDEMNIFICATION --------------- 11.1 - Tenant and Landlord shall each save and hold one another harmless from and against all liability, claims, and demands on account of personal injuries or property loss or damage of any kind whatsoever which arise out of or are in any manner connected with, or are claimed to arise out of or are in any manner connected with, and which result from, and only from, the negligent act of such other party. ARTICLE 12 - FIRE ---- 12.1 - In the event of the total destruction of the Building or the Premises by fire or other casualty during the term hereof or in the event of such partial destruction thereof as to render the Premises wholly untenantable or unfit for occupancy, then in either event, unless such damage can, in the reasonable opinion of Landlord, be repaired within one (1) year after the occurrence, this Lease and the term hereby created shall at either party's option, to be exercised within fifteen (15) days after notice from Landlord as hereinafter provided, cease from the date of such damage or destruction, and Tenant shall upon written notice from Landlord immediately surrender the Premises to Landlord and Tenant shall pay rent within said term only to the time of such damage or destruction. If, however, in Landlord's -12- reasonable opinion, the damage as aforesaid can be repaired within one (1) year from the occurrence thereof, Landlord shall (unless Landlord shall elect not to repair or rebuild, as hereinafter provided) repair the Premises with all reasonable speed, this Lease shall continue in full force and effect and there shall be an abatement of rent (to the extent of Landlord's receipt of rental insurance proceeds in an amount equal to the Minimum Rent and Additional Rent) until the repair is completed so that Tenant can occupy the Premises. Landlord shall notify Tenant within thirty (30) days from the occurrence of the destruction as to whether or not the damage can be repaired within one (1) year after the occurrence thereof. 12.2 - In the event of the partial destruction of the Building or Premises by fire or other casualty during the term hereof, which partial destruction does not render the Premises wholly untenantable or unfit for occupancy, for more than one (1) year in the Landlord's reasonable opinion, Landlord shall (unless Landlord shall elect not to repair or rebuild as hereinafter provided) repair the damage with all reasonable speed, this Lease shall continue in full force and effect and there shall be an abatement of rent (to the extent of Landlord's receipt of rental insurance proceeds in an amount equal to the Minimum Rent and Additional Rent) until the repair work is completed so that Tenant can occupy the Premises, in such proportion as the part of the Premises destroyed or rendered untenantable bears to the total leased Premises. If such damage cannot be repaired within one (1) year after the occurrence in the reasonable opinion of Landlord, this Lease and the term hereby created, at either party's option (to be exercised within fifteen (15) days after notice from Landlord as hereinafter provided) shall cease from the date of such damage or destruction as provided in Section 12.1. Landlord shall notify Tenant within thirty (30) days from the occurrence of the destruction as to whether or not the damage can be repaired within one (1) year after the occurrence thereof. 12.3 - In the event that the Premises shall be so slightly damaged by fire or other casualty so as not to affect or only slightly affect the operation of Tenant's business in the Premises, then in that event, there shall be no abatement of rent and this Lease shall continue in full force and effect, and Landlord shall enter and repair the damage with all reasonable speed. 12.4 - In the event that the Landlord elects, after any such total, partial or minimal damage or destruction, to reconstruct the Premises pursuant to this Lease, Landlord shall not have any liability whatsoever to Tenant to refit the Premises beyond the Building Standard, together with those alterations and improvements as set forth in Exhibit "D" attached hereto(such augmented fitting up hereafter referred to as the "Standard Tenant Fit-Up Specifications"). Tenant shall have the option as to whether and how to refit the Premises and, within the notice periods set forth above, shall be entitled to instruct Landlord to repair or replace any or all of the Building or Premises only up to Standard Tenant Fit-up Specifications. However, Tenant's election shall have no effect whatever on Tenant's continuing obligation to pay Minimum Rent and Additional Rent hereunder. If Tenant shall elect to refit the Premises beyond Standard Tenant Fit-up Specifications, such refitting shall be done at Tenant's sole cost and expense. If Tenant shall elect not to have Landlord repair or replace beyond Standard Tenant Fit-up Specifications, Tenant shall be entitled to all insurance proceeds in excess of those required by Landlord in the repair or replacement to the level of Standard Tenant Fit-up -13- Specifications, and shall also be entitled to the return of the Letter of Credit referred to in Article 37 hereinafter. 12.5 - Notwithstanding anything contained herein to the contrary: (a) if during the last two (2) years of the term of this Lease (which shall be deemed to include any extension periods granted Tenant herein) the Premises or the Building shall be so damaged by fire or other casualty that the Landlord decides not to repair or rebuild, or (b) if the same are damaged by a casualty which is not insurable under standard or extended coverage insurance, or if the proceeds of such insurance are not made available to Landlord, or if such proceeds, together with such payment which Tenant is willing to make toward such repair or replacement are, in Landlord's reasonable judgment, insufficient to repair or rebuild, and Landlord decides in its reasonable judgment either (i) not to repair or rebuild, or (ii) to demolish the entire Building and rebuild same, then upon the happening of any such event Landlord may cancel this Lease by giving written notice of such cancellation to Tenant within thirty (30) days after the happening of such damage and thereupon this Lease and the term hereof shall cease and terminate as of the date of the happening of such damage, and rent and other charges payable by Tenant shall be pro-rated to the day of such damage. 12.6 - Landlord shall use its best efforts to effect any such repair or restoration promptly and in such manner as not unreasonably to interfere with Tenant's use and occupancy of the Premises but such efforts shall be subject to (i) Landlord's inability to obtain materials, (ii) Acts of God, (iii) strikes, fire or weather, (iv) acts of governmental authority, or (v) any other cause beyond the control of Landlord. Notwithstanding the above, Landlord shall not be required to incur overtime or additional charges in any such repair or restoration of the Premises or of the Building pursuant to this Article 12. 12.7 - The provisions of this Article 12 shall be considered an express agreement governing any case of damage or destruction of the Premises by fire or other casualty, and any law of the State of New Jersey providing for such a contingency in the absence of an express agreement, and any other law of like import, now or hereafter in force, shall have no application in such case. 12.8 - In case of any damage by fire or other casualty, Tenant shall immediately notify Landlord. -14- ARTICLE 13 - EMINENT DOMAIN -------------- 13.1 - In the event that the entire or substantially the entire Premises or Building should be taken for any public or quasipublic use or should be taken by right of eminent domain or any other right, or should be sold to the condemning authority in lieu of condemnation, then this Lease shall terminate as of the date when physical possession of the Building or the Premises is taken by the condemning authority. 13.2 - The Landlord or the Tenant may exercise the aforesaid right or rights to terminate this Lease in its entirety as aforesaid by giving written notice to the other within sixty (60) days after the date of the vesting of title in such proceeding, specifying a date not more than thirty (30) days after the giving of such notice as the date for such termination. 13.3 - In the event of any taking of the Building or the Parcel, Landlord shall be entitled to receive so much of such award as is applicable to Landlord's leasehold interest and to the Standard Tenant Fit-Up Specifications and Tenant hereby assigns to Landlord any and all right, title and interest of Tenant in or to such portion of any such award or any part thereof and hereby waives all rights against Landlord and the condemning authority. Tenant shall have the right to claim and prove in any such proceeding and to receive any award which may be made, if any, specifically for the value of the Building above and beyond the value of the Standard Tenant Fit-Up Specifications, Tenant's moving expenses and damages or condemnation of Tenant's movable trade fixtures and equipment. 13.4 - In the event that this lease is not terminated after the eminent domain proceeding, Landlord shall promptly commence to repair or restore the Premises, at Landlord's expense (providing that Landlord shall have received adequate compensation for the taking), to Standard Tenant Fit-Up Specifications and complete same with due diligence, except for delays caused by (i) Landlord's inability to obtain materials, (ii) Acts of God, (iii) strikes, fire or weather, (iv) acts of governmental authority, or (v) any other cause beyond the control of Landlord, and the Minimum and Additional Rent shall be equitably reduced from and after the date title vests in the condemnor for the balance of the term by taking into account the character and the amount of the taking. The foregoing repair and restoration by Landlord shall exclude repair and/or restoration of Tenant's fixtures or decorations, for which Tenant shall be solely responsible. If Tenant elects to repair or replace its fixtures and to restore the Laboratory Area or the Manufacturing Area to its condition as such, Landlord shall not be responsible to perform work so as to restore to the Standard Tenant Fit-up Specifications, but shall be obligated only to make available to Tenant funds equal to what would have been Landlord's cost to restore such portion of the Building to the Standard Tenant Fit-up Specifications standard. The Tenant's Percentage shall be adjusted to reflect the balance of square feet of rentable area remaining as the Premises subsequent to said eminent domain proceeding. -15- ARTICLE 14 - ASSIGNMENT OR SUBLETTING ----------- -- ---------- 14.1 - Tenant agrees not to sell, assign, mortgage, hypothecate, pledge, or in any manner transfer this Lease or any estate or interest hereunder and not to sublet the Premises or any part or parts thereof without the previous written consent of Landlord, which consent by Landlord shall not be unreasonably withheld, conditioned or delayed. If Tenant violates the provisions of this Article 14, Landlord may accept from any assignee, sublessee, licensee, concessionaire or anyone who claims a right to the interest of Tenant under this lease or who occupies any part or the whole of the Premises the payment of Minimum Rent and Additional Rent and/or the performance of any of the other obligations of Tenant under this lease, but acceptance shall not be deemed to be a waiver by Landlord of the breach by Tenant of the provisions of this Article 14, nor a recognition by Landlord that any such assignee, sublessee, licensee, concessionaire, claimant or occupant has succeeded to the rights of Tenant hereunder, nor a release by Landlord of Tenant from further performance by Tenant of the covenants on Tenant's part to be performed under this lease; provided, however, that the net amount of rent collected from any such assignee, sublessee, licensee, concessionaire, claimant or occupant shall be applied by Landlord to the rent to be paid hereunder. Any consent by Landlord to any such assignment, transfer, subletting, license or concession or other matter or thing contained in this Article 14 shall not in anywise be construed to relieve Tenant from obtaining the prior consent of Landlord to any other or further such assignment, transfer, subletting, license, concession, matter or thing. 14.2 - If Tenant shall desire to assign this Lease or to sublet all or a portion of the Premises, Tenant shall submit to Landlord a written request for Landlord's consent to such assignment or subletting, which request shall contain or be accompanied by the following information: (i) the name and address of the proposed assignee or subtenant; (ii) in the case of a proposed subletting, a description identifying the space to be sublet (the "Sublet Space"); (iii) the nature and character of the business of the proposed assignee or subtenant and of its proposed use of the Premises; and (iv) the effective date of such proposed assignment or subletting (the "Termination Date"). If the Landlord consents to any assignment or sublet as provided in Section 14.1, the Minimum Rent applicable to the Premises or sublet portion thereof shall be adjusted as follows: (a) Commencing on the effective date of the assignment or sublet (the "Assignment/Sublet Date"), the Minimum Rent as provided in Article 4 (for both the initial Minimum Rent of $11.50 per square foot and the Minimum Rent commencing on the seventy (7th) anniversary of the Commencement Date at the rate of $14.00 per square foot) shall be increased by the percentage increase between the Consumer Price Index (as defined in Article 35) for the month in which this Lease is dated, and the Consumer Price Index for the month in which the assignment or subletting occurs. The Minimum Rent, as increased pursuant to this Subsection 14.2(a) shall be referred to as the "Revised Rent." (b) Commencing on the first anniversary of the Assignment/Sublet Date, the Revised Rent shall be adjusted as follows: -16- (i) The term "Index Month" shall mean the calendar month in which the Assignment/Sublet Date occurs, and thereafter, the calendar month in which each anniversary of the Assignment/Sublet Date occurs. (ii) The "Percentage Increase" shall mean the annual percentage increase, if any, in the Consumer Price Index yielded by dividing the difference between the Consumer Price Index for one Index Month and the Consumer Price Index for the immediately preceding Index Month, by the Consumer Price Index for the earlier of the two Index Months compared. (iii) The Landlord shall ascertain the Consumer Price Index for first Index Month and for each succeeding Index Month, and shall also determine the Percentage Increase. (iv) Effective on the first anniversary of the Assignment/Sublet Date and thereafter on each anniversary of the Assignment/Sublet Date, the Revised Rent shall be increased by multiplying (a) the amount of the Revised Rent, with respect to the first anniversary of the Assignment/Sublet Date, or (b) the amount of the Revised Rent as the same may have been increased by previous application of the Consumer Price Index adjustment provisions hereof, with respect to the subsequent anniversaries of the Assignment/Sublet Date, by the Percentage Increase plus 100%, which amount so obtained shall become the Revised Rent for the subject year. (v) The Landlord shall send a statement to the Tenant within one hundred twenty (120) days after each anniversary of the Assignment/Sublet Date, setting forth the adjustment made in the Revised Rent, which shall be for informational purposes and not a condition to the effectiveness of such adjustment. Prior to receipt of such statement of adjustment, Tenant shall continue to pay the Minimum Rent or the Revised Rent as then in effect. Within twenty (20) days following receipt of such statement Tenant shall pay Landlord any deficiency in the Revised Rent resulting from the annual adjustment. (v) In no event shall any adjustment based upon the Consumer Price Index result in a reduction of the Minimum Rent. (vi) All annual increases as provided in this Subsection 14.2(b) shall apply to both the initial Minimum Rent of $11.50 per square foot and the Minimum Rent commencing on the seventh (7th) anniversary of the Commencement Date at the rate of $14.00. Landlord shall be entitled to receive the Revised Rent and Tenant shall be entitled to receive from such assignees or subtenants any amount above the Revised Rent which Tenant can obtain, and Landlord shall have no claim to any such excess amount. -17- 14.3 - Notwithstanding the foregoing provisions of this Article 14, Tenant shall have the right, without Landlord's consent, to assign this lease or to sublet all or any portion of the premises to an "Affiliate", but no such assignment or subletting shall relieve Tenant of its obligations to Landlord hereunder. The term "Affiliate" shall mean any business entity that controls, is controlled by or is under common control with Tenant or any such entity which results from the merger or consolidation with Tenant or to any such entity which acquires all of Tenant's assets as a going concern so long as such entity assumes the obligations of Tenant under this Lease. It is understood that neither Section 14.1 or Section 14.2 shall apply to any assignment or subletting to an Affiliate, except that such Affiliate shall be deemed bound by all of the other terms and conditions of this Lease, and any Affiliate who is an assignee of this Lease shall agree with Landlord in writing to assume all of the obligations of this Lease and to attorn to Landlord. No Affiliate which is an assignee or subtenant hereunder shall thereafter be permitted to assign the Lease or further sublet the Premises or portion thereof under its control, except to an entity which is itself an Affiliate of such Affiliate, without first complying with the provisions of Sections 14.1 and 14.2. Tenant shall notify Landlord of any assignment or subletting to an Affiliate at least thirty (30) days prior to the date of such subletting or assignment. Such notification shall be accompanied by evidence reasonably satisfactory to Landlord which demonstrates such proposed assignee's or subtenant's status as an Affiliate. ARTICLE 15 - ENTRY BY LANDLORD ----------------- 15.1 - Landlord, by its duly authorized employees and agents, may, except as limited herein, enter the Premises at reasonable hours, (i) to inspect the same, (ii) to make repairs required of Landlord hereunder, or to make repairs, alterations or improvements to any portion of the Building, and (iii) to perform any work therein that may be necessary to comply with any laws, statutes, ordinances, regulations, orders and requirements of all governmental authorities having jurisdiction over the Premises, or to prevent waste or deterioration of the Premises; provided, however, that all such work shall be done as promptly as reasonably possible and so as to cause as little interference to Tenant as reasonably possible. Before performing any work in or affecting Tenant's Laboratory Area or Manufacturing Area, Landlord must notify Tenant. Any repairs, alterations or improvements to the Premises shall be done after normal business hours except for emergency repairs which shall be done as required. Landlord may, during the progress of any such work keep and store upon the Premises, all necessary materials, tools and equipment required for said work but Tenant shall not be responsible therefor. Landlord shall at all times retain a key with which to unlock all of the doors in, on or about the Premises (excluding Tenant's vaults, safes, sterile and similar areas which are hereby designated by Tenant); and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors, except the doors to such laboratory and manufacturing areas until emergency notice has been given to Tenant, in an emergency in order to obtain entry to the Premises, and any entry to the Premises obtained by Landlord by -18- any of said means or otherwise shall not under any circumstances be construed or deemed to be forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. ARTICLE 16 - INSPECTIONS BY PROSPECTIVE PURCHASERS AND TENANTS AND BY LENDERS ---------------------------------------------------------------- 16.1 - The Landlord is hereby given the right upon the giving of forty-eight (48) hours' prior notice to Tenant (which period shall include at least two (2) business days), to enter the Premises during usual business hours (i) to exhibit the same to prospective Building purchasers or prospective or current lenders at any time during the lease term or any renewal thereof, and (ii) to exhibit the same to prospective tenants within twelve (12) months prior to the expiration of the lease term or any renewal thereof. A representative of Landlord shall always accompany any such purchaser, tenant or lender on any of the aforesaid inspections. A representative of Tenant shall be present whenever any portion of the Premises are entered by Landlord and/or any third parties, such as prospective tenants, lenders or purchasers, for purposes set forth under this Section 16.1. Tenant shall have the right to impose reasonable restrictions (such as gowning) upon the right of such parties to enter the Laboratory Area and Manufacturing Area. ARTICLE 17 - SURRENDER --------- 17.1 - On the last day of the term demised, or the sooner termination thereof, Tenant shall peaceably surrender the Premises broom clean, in good order, condition and repair wear and tear excepted. On or before the last day of the term or the sooner termination thereof, Tenant shall, at its expense, remove its trade fixtures and signs from the Premises, and, subject to the limitations set forth in Section 17.2, shall restore the Laboratory Area and Manufacturing Area to the Building Standard, as set forth in Schedule C. Any property not removed shall be deemed abandoned and may be removed and disposed of by Landlord and the expense of such removal shall be paid to Landlord by Tenant without any setoff for the salvage value of goods so removed. If the Premises be not surrendered at the end of the term or the sooner termination thereof, Tenant shall indemnify Landlord against loss or liability resulting from delay by Tenant in so surrendering the Premises, including, without limitation, claims made by any succeeding tenant founded on such delay. Tenant shall promptly surrender all keys for the Premises to Landlord at the place then fixed for payment of rent. Tenant's covenants hereunder shall survive the expiration or termination of this Lease. 17.2 - Landlord agrees that in the marketing of the Premises to prospective tenants for use after the term of this Lease, it will use commercially reasonable efforts to lease the Premises as improved with all alterations and improvements made by Tenant, including the Tenant Changes and all work done before the term of this Lease (collectively, the "Alterations"). Whether such proposed tenant was found through Tenant's or Landlord's efforts, Landlord agrees to negotiate with such proposed tenant in good faith, including negotiations regarding the use by such tenant of some or all of the Alterations. In the event that such tenant enters into a lease which calls for some or all of the Alterations to remain, Landlord shall relieve -19- Tenant of its obligation to restore any such portion of the Premises to the Building Standard set forth in Schedule C. This Section 17.2 is intended to provide the ability for Tenant to relieve itself of its financial responsibility to restore the Laboratory Area and the Manufacturing Area. This Section is not intended to impose any greater burden upon Tenant than that of removing the Alterations and restoring the Premises to the standard set forth in Section 9.5 hereinbefore. Therefore, Tenant shall not be obligated, in the aggregate, to do any more work or incur any greater expense than it would have incurred in restoring the Premises to Building Standard. Landlord shall remain obligated to perform all tenant fitup for any such new tenant, including the moving or modification of any Alterations. By way of example, if the new tenant indicates that it intends to rent from Landlord ten thousand (10,000) square feet of existing Laboratory Area, Tenant shall not be responsible to make any renovations to that space and would restrict its restoration work to the other portions of the Premises. 17.3 - If the Tenant shall occupy the Premises with the consent of the Landlord after the expiration of this Lease and rent is accepted from said Tenant, such occupancy and payment shall be construed as an extension of this Lease for a term expiring on the last day of the month next following the month in which the said Lease expired, and occupation thereafter shall operate to extend the term of this Lease for one (l) month at a time unless other terms of such extension are made in writing and signed by the parties hereto. In such event, if either Landlord or Tenant desires to terminate said occupancy at the end of any month after the termination of this Lease, the party so desiring to terminate the same shall give the other party at least thirty (30) days written notice to that effect. Failure on the part of the Tenant to give such notice shall obligate it to pay rent for an additional calendar month following the month in which the Tenant has vacated the Premises. ARTICLE 18 - DEFAULT ------- 18.1 - Tenant shall, without any previous demand therefor, pay to Landlord the Minimum Rent and Additional Rent at the times and in the manner heretofore provided. In the event: (a) of default in the payment of said rents or of any installment or part thereof, or in the payment of any other sum or any part thereof which may become due from Tenant to Landlord hereunder, at the time and in the manner provided herein, and if the same shall remain in default for ten (10) days after becoming due, or (b) of the violation by Tenant of any of the covenants, agreements and conditions herein provided or of any of the Rules and Regulations now or hereafter reasonably established by Landlord, and the failure to cure such violation within thirty (30) days after notice in writing of such violation by Landlord to Tenant; then upon the happening of any such event, Landlord may, at its option, elect either to terminate this Lease or to enter the said Premises as the agent of Tenant, without being liable -20- for any prosecution or damage therefor, and relet the Premises as the agent of Tenant, and receive the rent therefor, upon such terms as shall be satisfactory to Landlord, and all rights of Tenant to repossess the Premises under this Lease shall cease and end upon such termination or entry. Such entry for reletting by Landlord shall not operate to release Tenant from any rent to be paid or covenants to be performed hereunder during the full term of this Lease. For the purpose of reletting, Landlord shall be authorized to make such repairs or alterations in or to the Premises as may be necessary to place the same in good order and condition. Tenant shall be liable for and hereby agrees to pay to Landlord the cost of such repairs or alterations and all expenses of such reletting. If the sum realized or to be realized from the reletting is insufficient to satisfy the rent provided in this Lease, Landlord, at its option, may require Tenant to pay such deficiency month by month (or at any greater intervals), or may hold Tenant in advance for the entire deficiency resulting from such reletting. Landlord shall look first to Tenant's Letter of Credit, as described in Article 37. Only after that Letter of Credit is fully used shall Landlord be granted a lien, in addition to any statutory lien or right to distrain that may exist, on all personal property of Tenant in or upon the Premises, including, without limitation, furniture, fixtures (including trade fixtures) and merchandise of Tenant, to assure payment of the rent and performance of the covenants and conditions of this Lease. Landlord shall have the right, as agent of Tenant, to take Possession of all personal property of Tenant found in or about the Premises, including, without limitation, furniture and fixtures of Tenant, and sell the same at public or private sale and to apply the proceeds thereof to the payment of any monies becoming due under this Lease, or remove all such effects and store the same in a public warehouse or elsewhere at the cost of and for the account of Tenant, or any other occupant. 18.2 - In the event of any breach by Tenant of any of the agreements, terms, covenants or conditions contained in this lease, Landlord shall be entitled to enjoin such breach and shall have the right to invoke any right and remedy allowed at law or in equity or by statute or otherwise as though re-entry, summary proceedings, and other remedies were not provided for in this Lease. 18.3 - Each right and remedy of Landlord provided for in this Lease shall be cumulative and shall be in addition to every other right or remedy provided for in this Lease or now or hereafter existing it law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Landlord of any one or more of the rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by Landlord of any or all other rights or remedies provided for in this lease or now or hereafter existing at law or in equity or by statute or otherwise. 18.4 - If the term of this Lease shall be terminated due to default by the Tenant of any of the terms or covenants herein contained, this Lease and the term and estate hereby granted, whether or not the term shall heretofore have commenced, shall terminate with the same effect as if that day were the expiration date of the term of this lease, but Tenant shall remain liable for all damages as are provided for herein. ARTICLE 19 - BANKRUPTCY ---------- -21- 19.1 - At any time prior to or during the term of this Lease, if Tenant shall make an assignment for the benefit of its creditors; or if Tenant shall file a voluntary petition in bankruptcy; or if Tenant shall be adjudicated a bankrupt or insolvent; or if the affairs of Tenant shall be taken over by or pursuant to an order of any court or of any other officer or governmental authority pursuant to any federal, state or other statute or law; or if Tenant shall admit in writing its inability to pay or does not pay debts generally as they become due; or if Tenant shall file any Petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy act or any other present or future applicable federal, state or other statute or law; or if Tenant shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or of all or any substantial part of its property; or, if, within sixty (60) days after the commencement of any proceedings against Tenant seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or future federal bankruptcy act or any other present or future applicable federal, state or other statute or law, such proceedings shall have not been dismissed; or, if, within sixty (60) days after the appointment, without the consent or acquiescence of Tenant, of any trustee, receiver or liquidator of Tenant or of all or any substantial part of its property, such appointment shall not have been vacated or stayed or dismissed; or if, within sixty (60) days after the expiration of any such stay, such appointment shall not have been vacated; or in the event action shall be taken by Tenant in furtherance of any of the aforesaid purposes, then and in any such event, this Lease and all rights of Tenant herein shall be automatically terminated, and in such event neither Tenant nor any person claiming by, through or under Tenant by virtue of any statute or of an order of any court shall be entitled to possession or to remain in possession of the Premises but shall forthwith quit and surrender the Premises. Such causes for the termination of this lease as set forth in this Article 19 shall constitute a default by Tenant and all rights and remedies stated or otherwise reserved under Article 18 hereof shall be available to Landlord. The word "Tenant" in this Article 19 shall be construed to include any Surety or Guarantor of this lease. 19.2 - It is stipulated and agreed that in the event of the termination of this Lease pursuant to this Article 19, Landlord shall forthwith, notwithstanding any other provisions of this Lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rent reserved hereunder for the unexpired portion of the term demised and the then fair and reasonable rental value of the Premises for the same period. In the computation of such damages the difference between any installment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the Premises for the period for which such installment was payable shall be discounted to the date of termination at the rate of four (4%) per cent per annum. If such Premises or any part thereof be relet by the Landlord for the unexpired term of said lease, or any part thereof, before presentation of proof of such liquidated damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall be prima facia evidence as to the fair and reasonable rental value for the part or the whole of the Premises so relet during the term of the reletting. Nothing herein contained shall limit or prejudice the right of the Landlord to prove and obtain as liquidated damages by reason of such termination an amount -22- equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which such damages are to be proved, whether or not such amount be greater than, equal to or less than the amount of the difference referred to above. ARTICLE 20 - QUIET ENJOYMENT --------------- 20.1 - Tenant, subject to the terms and provisions of this Lease and to all mortgages and underlying leases of record to which this Lease may be or may become subordinate, on payment of all Minimum Rent and Additional Rent and observing, keeping and performing all of the terms and provisions of this Lease, shall lawfully, peaceably and quietly have, hold, occupy and enjoy the Premises during the term hereof. This covenant shall be binding on Landlord only during its ownership of the Premises. In the event Landlord shall sell or otherwise dispose of its interest in the Premises during the term of this Lease, such sale or other disposition shall operate to release and relieve Landlord, but not the purchaser or other successor to Landlord's interest, from any further liability or obligation to Tenant hereunder. ARTICLE 21 - CONSENT BY LANDLORD ------------------- 21.1 - Whenever, under this Lease, provision is made for Tenant securing the written consent or approval by Landlord, such consent or approval shall be in writing and may be withheld by Landlord in its sole discretion, unless it is otherwise herein specifically provided that such consent shall not unreasonably be withheld, conditioned or delayed. -23- ARTICLE 22 - SUBORDINATION ------------- 22.1 - This Lease, and all rights of Tenant hereunder, are and shall be subject to subordination in all respects to all present and future ground leases, overriding leases and underlying leases of the Premises, Building or the Parcel and to all present and future mortgages and building loan agreements, including leasehold mortgages and building loan mortgages, which may now or hereafter affect the same, to each and every advance made or to be made under such mortgages, and to all renewals, modifications, replacements and consolidations of such mortgages. This Section 22.1 shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute and deliver at its own cost and expense (as to the review, execution and delivery of such documentation) any instrument (which shall be prepared at Landlord's expense), in recordable form if required, that Landlord, the lessor of any such lease or the holder of any mortgage or any of their respective successors in interest may require to evidence such subordination. Notwithstanding anything to the contrary, the foregoing provisions of this Section 22.1 shall be effective only in the event that any such future mortgagee or holder of other encumbrance provides, or the holder thereof agrees with Tenant, substantially as follows: (a) That this Lease is and shall be subject and subordinate to the mortgage insofar as it affects the real property of which the Premises form a part, and to all renewals, modifications, consolidations, replacements and extensions thereof, to the full extent of the principal sum secured thereby and interest thereon; (b) That in the event it should become necessary to foreclose the mortgage, the mortgagee thereunder will not join Tenant under this Lease in summary or foreclosure proceedings so long as Tenant is not in default beyond any applicable grace periods therefor under any of the terms, covenants or conditions of this Lease; (c) That in the event the mortgagee shall, in accordance with the foregoing, succeed to the interest of Landlord under this Lease, the mortgagee agrees to be bound to Tenant under all of the terms, covenants and conditions of this Lease, and Tenant agrees, from and after such event, to attorn to the mortgagee and/or purchaser at any foreclosure sale of the Premises, all rights and obligations under this Lease to continue as though the interest of Landlord had not terminated or such foreclosure proceedings had not been brought, and Tenant shall have the same remedies against the mortgagee for the breach of an agreement contained in this Lease against Landlord if the mortgagee had not succeeded to the interest of Landlord; provided, however, that the mortgagee shall not be (i) liable for any act or omission of any prior landlord (including Landlord); or (ii) subject to any offsets or defenses which Tenant might have against any prior landlord (including Landlord); or (iii) bound by any Minimum Rent or Additional Rent which Tenant might have paid for more than the current month to any prior landlord (including Landlord); or (iv) bound by any amendment or modification of the Lease made without its consent. Landlord agrees to use its best efforts to obtain for Tenant from its present mortgagee and ground lessor a non-disturbance agreement substantially in accordance with the foregoing and to promptly obtain the consent of any mortgagee or ground lessor to any such modification. 22.2 - Any mortgage, including leasehold mortgages and building loan mortgages, which may now or hereafter affect the Premises, may require that this Lease be superior and have priority -24- as to the mortgage in which event Tenant agrees to execute any instrument that the holder of the mortgage may require to evidence same. ARTICLE 23 - MECHANICS' LIENS ---------------- 23.1 - Tenant shall not suffer any mechanic's lien to be filed against the Premises by reason of work, labor, services or materials performed or furnished to Tenant or to anyone holding the Premises through or under Tenant. If any such mechanic's lien shall at any time be filed against the Premises, Tenant shall forthwith cause the same to be discharged of record by payment, bond, order of a court of competent jurisdiction or otherwise, but Tenant shall have the right to contest any and all such liens. If Tenant shall fail to cause such lien to be discharged within thirty (30) days after being notified of the filing thereof and before judgment or sale thereunder, then, in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to, discharge the same by paying the amount claimed to be due or by bonding or other proceeding deemed appropriate by Landlord, and the reasonable and provable amount so paid by Landlord and/or all costs and expenses, including reasonable attorney's fees, reasonably and provably incurred by Landlord in procuring the discharge of such lien, shall be deemed to be Additional Rent. ARTICLE 24 - NOTICES ------- 24.1 - Any notice required or permitted under this Lease shall, unless otherwise specifically provided herein, be deemed sufficiently given or served if sent by registered or certified mail return receipt requested, postage prepaid, addressed to Tenant at 1 Research Way, Princeton, New Jersey 08540 and to Landlord at the address then fixed for the payment of rent. Any such notice shall be deemed given as of the date of mailing. Either party may by 15 days notice at any time designate a different address to which notices shall subsequently be mailed. ARTICLE 25 - WAIVER OF TRIAL BY JURY ----------------------- 25.1 - To the extent permitted by law, Landlord and Tenant hereby waive trial by jury in any action brought by either against the other on any matter arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant or Tenant's use or occupancy of the Premises including any claim or injury or damage. ARTICLE 26 - NO OTHER WAIVER OR MODIFICATIONS -------------------------------- 26.1 - The failure of either party to insist in any one or more instances upon the strict performance of any one or more of the agreements, terms, covenants, conditions or obligations of this lease, or to exercise any right, remedy or election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such one or more obligations of this lease or of the right to exercise such election, but the same shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. -25- ARTICLE 27 - CURING TENANT'S DEFAULTS ------------------------ 27.1 - If Tenant shall default in the performance of any covenant, agreement, term, provision or condition herein contained, Landlord without thereby waiving such default, may (but shall not be obligated to) perform the same for the account of and at the expense of Tenant, without notice in a case of emergency and in any other case if such default continues after thirty (30) days from the date of the giving by Landlord to Tenant of written notice of such default. Bills for any reasonable and necessary expense incurred by Landlord in connection with any such performance by Landlord for the account of Tenant, and reasonable and necessary bills for all costs, expenses and disbursements, including (without being limited to) reasonable counsel fee, incurred in collecting or endeavoring to collect the Minimum Rent or Additional Rent or other charge or any part thereof or enforcing or endeavoring to enforce any rights against Tenant under or in connection with this Lease, or pursuant to law, including (without being limited to) any such cost, expense and disbursement involved in instituting and prosecuting summary proceedings, as well as bills for any property, material, labor or services provided, furnished or rendered, or caused to be provided, furnished or rendered, by Landlord to Tenant and any charges for other services incurred by Tenant under this Lease, may be sent by Landlord to Tenant monthly, or immediately, at Landlord's option, and shall be due and payable by Tenant in accordance with the terms of said bills and if not paid when due, the amounts thereof shall immediately become due and payable as Additional Rent under this Lease together with interest thereon at a per annum rate equal to the sum of the Prime Rate as published in the Wall Street Journal from time to time, plus two (2) percentage points from the date the said bills should have been paid in accordance with their terms. ARTICLE 28 - ESTOPPEL CERTIFICATE -------------------- 28.1 - Tenant agrees, at any time and from time to time, as requested by Landlord, upon not less than ten (10) days prior notice, to execute and deliver without cost or expense to the Landlord a statement certifying that this lease is unmodified and in full force and effect (or if there have been modifications that the same is in full force and effect as modified and stating the modifications), certifying the dates to which the Minimum Rent and Additional Rent have been paid, and stating whether or not, to the best knowledge of the Tenant, the Landlord is in default in performance of any of its obligations under this lease, and if so, specifying each such default of which the Tenant may have knowledge. 28.2 - It is intended that any such statement delivered to the Landlord pursuant to this Article 28 may be relied upon by any prospective purchaser of the fee, or any mortgagee thereof, or any assignee of any mortgage upon the leasehold or fee of the Premises or any proposed lessee of all or part of the Parcel. ARTICLE 29 - PARTIES BOUND ------------- 29.1 - The obligations of this Lease shall bind and benefit the successors and assigns of the parties with the same effect as if mentioned in each instance where a party is named or referred to, except that no violation of the provisions of Article 16 shall operate to vest any -26- rights in any successor or assignee of Tenant and that the provisions of this Article 29 shall not be construed as modifying the conditions of limitation contained in Article 20. However, the obligations of Landlord under this Lease shall not be binding upon Landlord herein named with respect to any period subsequent to the transfer of its interest in the Parcel as owner or lessee thereof and in the event of such transfer said obligations shall thereafter be binding upon each transferee of the interest of Landlord herein named as such owner or lessee of the Parcel, but only with respect to the period ending with a subsequent transfer within the meaning of this Article 29 and such transferee, by accepting such interest, shall be deemed to have assumed such obligations except only as may be expressly otherwise provided in this Lease. A lease of Landlord's entire interest in the Parcel as owner or lessee thereof shall be deemed a transfer within the meaning of this Article 29. Any assignment of Landlord's interest hereunder shall contain an assumption by Landlord's successor on terms satisfactory to Landlord and Landlord's successor and not in derogation of any rights of Tenant hereunder. Any assignment by Tenant shall be governed by Article 14 hereof. 29.2 - Tenant shall look solely to Landlord's estate and property in the Premises (or the proceeds thereof) for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord in the event of any default by Landlord hereunder, and no other property or assets of Landlord or Landlord's partners or members shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to either this Lease, the relationship of Landlord and Tenant hereunder or Tenant's use and occupancy of the Premises. ARTICLE 30 - FORCE MAJEURE ------------- 30.1 - Except as otherwise expressly provided herein, this Lease and the obligations of Tenant to pay rent hereunder and perform all of the other covenants, agreements, terms, provisions and conditions hereunder on the part of Tenant to be performed shall in no wise be affected, impaired or excused because Landlord is unable to fulfill any of its obligations under this Lease or is unable to supply or is delayed in supplying any service, express or implied, to be supplied or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of any cause beyond Landlord's reasonable control, including, but not limited to, Acts of God, strikes, labor troubles, shortage of materials, governmental preemption in connection with a national emergency or by reason of any rule, order or regulation of any governmental agency or by reason of the conditions of supply and demand which have been or are affected by war, hostilities or similar emergency; provided that Landlord shall in each instance exercise reasonable diligence to effect performance as soon as possible. It is agreed that the Landlord shall not be required to incur any overtime or additional expenses in Landlord's reasonable diligence to effect the performance of any of Landlord's obligations in this lease contained. ARTICLE 31 - PARKING ------- 31.1 - Tenant shall have the right to the exclusive use of the parking spaces on the Parcel for its employees and visitors. -27- ARTICLE 32 - DEFINITION OF LANDLORD ---------------------- 32.1 - The term "Landlord" as used in this lease shall mean, at any given time or from time to time as described in Section 29.1, the owner, or owners, collectively or individually, for the time being of the fee or leasehold of all or any portions of the Building. The necessary grammatical changes required to make the provisions of this Lease apply in the plural sense where there is more than one Landlord or Tenant and to either corporations, associations, partnerships or individuals, males or females, shall in all instances be assumed as though in each case fully expressed. ARTICLE 33 - TAXES ON TENANT'S PROPERTY -------------------------- 33.1 - Tenant shall be liable for all taxes levied or assessed against any personalty, fixtures and equipment installed by Tenant in the Premises. If any such taxes are levied or assessed against Landlord, Tenant shall pay Landlord upon demand taxes for which Tenant is liable as aforesaid. ARTICLE 34 - ENVIRONMENTAL MATTERS --------------------- 34.1 - Tenant represents and warrants to Landlord that its Standard Industrial Classification ("SIC") number is _________. Tenant shall immediately notify Landlord of any changes in its SIC number. It is understood and agreed that Tenant's operations constitute an "industrial establishment" as defined under the Industrial Site Recovery Act, N.J.S.A. 13:1K-6, et seq. ("ISRA"). Tenant's -- --- use of the Premises shall be restricted to the classification number set forth in this Section unless Tenant obtains Landlord's prior written consent to any change in use of the Premises, which consent shall not be unreasonably withheld, conditioned or delayed. Prior to the Commencement Date, Tenant shall deliver to Landlord an Affidavit of an officer of Tenant (the "Officer's Affidavit"), setting forth a detailed description of the operations and processes Tenant shall undertake at the Premises, organized in the form of a narrative report. Such report need not detail any operations or processes which Tenant believes to be proprietary in nature. After the Commencement Date, Tenant shall notify Landlord by way of the Officer's Affidavit as to any change in Tenant's operations or processes which Tenant reasonably concludes would materially affect the applicability of ISRA or similar legislation. Tenant shall supplement and update the Officer's Affidavit upon the written request for same by Landlord, but no more often than annually. In addition, Tenant shall complete and promptly return to Landlord any and all surveys or questionnaires, or similar inquiries, provided by Landlord to Tenant from time to time regarding Tenant's use of Hazardous Materials in, on, under, at or about the Premises. 34.2 - Tenant shall, at Tenant's own expense, comply with any and all legislation, rules and regulations in effect as of the date hereof and subsequent thereto relating to the environment, including but not limited to, ISRA, the New Jersey Environmental Rights Act, N.J.S.A. 2A: 35A-1 et seq.; ---------------------------------------------------------------- the Spill Compensation and Control Act, N.J. S.A. 58:10-23.11 et seq.; the New - ---------------------------------------------------------------------- ------- Jersey Air Pollution Control Act, N.J.S.A. 26:2C-1 et seq.; the Resource - ---------------------------------------------------------- ------------ -28- Conservation and Recovery Act, as amended, 42 U.S.C. (S) 6901 et seq; the - -------------------------------------------------------------------- --- Comprehensive Environmental Response, Compensation and Liability Act, as - ------------------------------------------------------------------------ amended, 42 U.S.C. (S) 9601 et seq.; the Water Pollution Control Act, 33 U.S.C. - ----------------------------------- ------------------------------------------- (S) 1251 et seq.; the Hazardous Substance Discharge: Reports and Notices Act, - ---------------- ----------------------------------------------------------- N.J.S.A. 13: IX-IS et seq.; together with any amendments thereto, regulations - -------------------------- promulgated thereunder and all substitutions thereof, as well as words of similar purport or meaning referred to in any other Regulations, and any all amendments thereto and the regulations and orders promulgated thereunder (collectively, "Environmental Laws"). Tenant shall, at Tenant's own expense, make all submissions to, provide all information to, and comply with all requirements of, the Industrial Site Evaluation Element ("the ISEE") of the New Jersey Department of Environmental Protection ("NJDEP") or any other governmental entity. Should the ISEE or any other division of NJDEP or any other governmental entity determine that a cleanup plan be prepared or that any other action be taken and that a cleanup of the Premises or other action be undertaken, then Tenant shall, at Tenant's own expense, prepare and submit the required plans and financial assurances, carry out the approved plans or required actions and obtain all requisite approvals or consents of applicable governmental entities. Tenant's obligations under this Article shall arise if there is a "closing, termination or transferring" of operations (as such term is defined in ISRA) or if any other triggering event or activity occurs which falls under the purview of the statutes hereinbefore referred, including but not limited to a transfer of ownership. Tenant shall commence its submission to the ISEE in anticipation of the end of the Lease Term no later than nine (9) months prior to the expiration of the Lease Term. Tenant shall obtain either (A) a negative declaration approval; (B) final approval of cleanup; (C) a de minimis quantity exemption; or (D) a letter of non-applicability (collectively referred to as the "ISRA Clearance") from the NJDEP no later than thirty (30) days prior to the expiration or earlier termination of this Lease. 34.3 - At no expense to Landlord, Tenant shall, in addition to the foregoing, promptly provide all information reasonably requested by Landlord for preparation of non-applicability affidavits or otherwise related to Tenant's obligations hereunder. Tenant shall promptly sign such affidavits when requested by Landlord. Tenant shall indemnity, defend and save harmless Landlord from and against all fines, suits, procedures, claims and actions of any kind arising out of or in any way connected with any spills or discharges of hazardous substances or wastes in or about the Premises which occur during the term of this Lease; and from all fines, suits, procedures, claims and actions of any kind or nature arising out of Tenant's failure to provide all information, make all submissions and take all actions required by the ISEE or any other division of NJDEP or any other governmental entity. Tenant's obligations and liabilities under this Article shall survive the expiration of this lease term and shall continue so long as Landlord remains responsible for the cleanup of any spills or discharges of hazardous substances or wastes in or about the Premises which occur during the term of this Lease or for any other fines, suits, proceedings, claims or actions of any kind or nature whatsoever arising out of Tenant's failure to provide all information, make, all submissions or take all actions required by the ISEE, any other division of NJDEP or any other governmental entity. Tenant's failure to abide by the terms of this Article shall be restrainable by injunction. 34.4 - Landlord reserves the right from time to time, but not more than once a year, except in the event of an emergency, during the term and any renewal term hereof, at Tenant's reasonable cost and expense not to exceed $1500 per year, to have the Premises inspected by -29- environmental engineers and/or specialists reasonably acceptable to Tenant but of Landlord's choosing, for the purpose of determining compliance by Tenant with any environmental laws, rules and regulations applicable to Tenant's operations in or about the Premises and with the terms and conditions of this Lease dealing with environmental matters, including without limitation, the provisions of this Section 34.4. If the environmental assessment or report resulting from such inspection discloses any non-compliance, Tenant shall immediately following receipt of the environmental assessment take all such steps as are necessary to put the Premises into compliance, including without limitation, cleaning up any spills or other emissions of hazardous and/or toxic substances or wastes. 34.5 - If Tenant fails to obtain the ISRA Clearance or fails to clean up the Premises pursuant to the provisions of this Section, prior to the expiration or earlier termination of this Lease, Landlord shall have the right, without the obligation, in addition to all other rights and remedies available to Landlord under this Lease and at law, to consider this Lease as having ended or to treat Tenant as a holdover tenant in possession of the Premises. If Landlord considers the Lease as having ended, then Tenant shall nevertheless be obligated to promptly obtain the ISRA Clearance. If Landlord treats Tenant as a holdover tenant in possession of the Premises, Tenant shall monthly pay to Landlord the rent and additional rent which Tenant otherwise would have paid as a holdover tenant, until such time as Tenant obtains the ISRA Clearance, and during the holdover period, all terms, conditions, and covenants of this Lease shall remain in full force and effect with the exception of any option to renew or purchase rights, which option and rights shall be deemed null and void and of no further force or effect. 34.6 - If ISRA is not applicable to the closing, terminating or transferring of operations by Tenant at the Premises, then Tenant shall, at Landlord's option, hire a consultant satisfactory to Landlord to undertake at Landlord's direction, sampling at the Premises sufficient to determine whether Tenant's operations have resulted in a spill or discharge of Hazardous Materials in, on, under, at or about the Premises. Should the sampling reveal any spill or discharge of Hazardous Materials, Tenant shall, at Tenant's own cost and expense, promptly undertake all action required by pursuant to all Environmental Laws, including without limitation, posting all financial assurances required. 34.7 - The term "Hazardous Materials" shall include, without limitation, any regulated substance, toxic substance, hazardous substance, hazardous waste, pollution, pollutant or contaminant, as defined or referred to in any Environmental Law. 34.8 - Tenant shall, at no cost to Landlord, promptly deliver to Landlord: (a) A certified, true and complete copy of all documents, including without limitation all submissions, notices, permits, applications, reports, registrations, filings, sampling plans, cleanup plans, diagrams, charts, analysis, maps, conclusions, quality assurance/quality control documentation and correspondence provided by or on behalf of Tenant to any governmental authority; (b) A certified, true and complete copy of all documents, including without limitation all submissions, notices, permits, reports, registrations, directives, -30- orders, filings, sampling plan approvals, cleanup plan approvals or any other approvals or denials, and correspondence provided by any governmental authority to Tenant or Tenant's representatives; and (b) A certified, true and complete copy of all sampling and test results obtained from samples and tests taken at, in, on, under or about the Premises by or on behalf of Tenant. 34.9 - Tenant shall notify Landlord in advance of all meetings, site inspections, and/or sampling events scheduled by or with any governmental authority by or with Tenant or any representative of Tenant, and Landlord shall have the right, without the obligation, to attend and participate in any such meeting, site inspection and/or sampling event. 34.10 - All references to Tenant shall mean Tenant and its employees, agents, assigns, subcontractors, licensees, invitees, customers, suppliers, subtenants or occupants. ARTICLE 35 - OPTION TO RENEW --------------- 35.1 - Provided that Tenant is not in default beyond any applicable grace period, Tenant shall have an option to extend the term of the Lease, as amended hereby, for two additional periods of five (5) years each commencing on the expiration of the initial Term hereof and expiring five (5) years thereafter (the "first renewal period") and commencing upon the expiration of the first renewal period and expiring five (5) years thereafter (the "second renewal period") upon the following terms and conditions: (a) Tenant shall with respect to either renewal period exercise its option to renew, if at all, by furnishing Landlord with written notice which shall be received by Landlord at least nine (9) months prior to the initial expiration date of the term of this lease, or the expiration of the first renewal period, as the case may be, time being strictly of the essence. The failure of Tenant to furnish such notice to Landlord in a timely manner as provided shall constitute a waiver by Tenant of Tenant's option to renew the term and/or first renewal period hereof and shall release Landlord from any obligation to extend or further extend the term. (b) All of the terms, covenants and conditions set forth in this Lease and applicable to the initial term hereof shall apply to the first renewal period and, as applicable, the second renewal period, except the provision of this article with respect to the payment of Minimum Rent. (c) The Minimum Rent payable during the first renewal period shall be equal to the Minimum Rent payable immediately prior to the expiration of the prior term, increased by fifty (50%) percent of the percentage increase between the Consumer Price Index for December, 2001 and the Consumer Price Index for the month of December, 2006 but in no event to exceed an increase of fifteen percent (15%). In no event shall any adjustment based upon the Consumer Price Index result in a reduction of the Base Rent. For the purposes of this Section, the term "Consumer Price Index" means the "All Items" Index for the New York - Northeastern New Jersey Area of the "Consumer Price Index for all Urban Consumers" -31- (Revised CPI-U) (1982-84=100) published by the Bureau of Labor Statistics of the U.S. Dept. of Labor (or such successor index as may hereafter replace said Consumer Price Index). If any revisions or changes in the base period of said Consumer Price Index are made by the Bureau of Labor Statistics or its successor during the interim period, the statistics used in such revised or changed Index shall be corrected or weighted to correspond to the statistics used in the Index in effect for the month immediately preceding the commencement of the term hereof. In the event that the Consumer Price Index is discontinued and not replaced with an equivalent index of an agency of the United States government, the nearest equivalent consumer price index of any other public or private organization in the United States, as determined by Landlord, shall be used for any purpose for which the Consumer Price Index is to be used in this Lease. (d) The annual Base Rent payable during the second renewal period shall be equal to ninety-five percent (95%) or the prevailing fair market rental paid for comparable flex/office space (totally excluding the value of all of Tenant's Alterations in arriving at comparability) in the Princeton area (the "Comparison Area"), as of the date which is six (6) months prior to the expiration of the first renewal period, as mutually determined by the parties using their best good faith efforts at the time of the exercise of the renewal option hereunder. If the parties are unable to agree upon the fair market rental of comparable space no later than five (5) months prior to the expiration of the first renewal period, such one (1) month period representing the "Mutual Agreement Period", said rental rate shall be determined by arbitration in the following manner: (i) Landlord and Tenant shall each appoint one arbitrator who shall, by profession, be an M.A.I. real estate appraiser, who shall have been active over the five (5) year period ending on the date of Tenant's exercise of said option in the appraisal of commercial and industrial properties in the Comparison Area. Each such arbitrator shall be appointed within fifteen (15) days after the expiration of the thirty (30) day mutual agreement period described hereinabove. (ii) The two arbitrators so appointed shall, within fifteen (15) days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be qualified based upon the same criteria set forth hereinabove or qualification of the initial two arbitrators. (iii) The three arbitrators shall within thirty (30) days of the appointment of the third arbitrator reach a decision and notify Landlord and Tenant thereof. (iv) The decision of the majority of the three arbitrators shall be binding upon Landlord and Tenant. Failure of a majority of said arbitrators to reach agreement shall result in the prevailing fair market rental for comparable space in the Comparison Area being designated by averaging the appraisals for the three arbitrators, ignoring for the purposes of such averaging any portion of the high and low appraisal which is more than ten (10%) percent in excess of or less than the middle appraisal. (v) If either Landlord or Tenant fails to appoint an arbitrator within the time period in subparagraph (i) hereinabove, the arbitrator appointed by one of them -32- shall reach a decision, notify Landlord and Tenant thereof, and such arbitrator's decision shall be binding upon Landlord and Tenant. (vi) If the two arbitrators fail to agree upon and appoint a third arbitrator, such matter shall be forthwith submitted to arbitration under the provisions of the American Arbitration Association. (vii) The cost of Landlord' arbitrator shall be borne by Landlord, the cost of Tenant's arbitrator shall be borne by Tenant, and the cost of the third arbitrator and any other costs of the arbitration shall be paid by Landlord and Tenant equally. (viii) In no event shall the annual Base Rent payable during the renewal period be less than the annual Base Rent payable immediately preceding the renewal period of this Lease. (e) The option to renew granted to Tenant is personal to Tenant and may not be exercised or assigned, voluntarily or involuntarily, by or to any other person or entity other than Tenant. ARTICLE 36 - RIGHT OF FIRST OFFER TO PURCHASE -------------------------------- 36.1 - Provided that Tenant is not in default of any of its obligations or covenants under this Lease, in the event Landlord desires to sell its leasehold interest in the Premises, Landlord agrees that it will give Tenant notice of Landlord's intention to list the Premises for sale, together with the terms upon which Landlord intends to list the Premises ("Landlord's Offer Notice"). Tenant shall be deemed to have waived its rights under this Section, unless Tenant notifies Landlord within ten (10) days of Tenant's receipt of Landlord's notice that Tenant is willing to purchase Landlord's interest in the Premises upon the terms similar to those set forth in Landlord's notice. In the event Tenant notifies Landlord of its willingness to purchase the Premises, Tenant shall have twenty (20) days from Tenant's receipt of Landlord's notice to negotiate with Landlord a purchase agreement acceptable to both parties. In the event that the parties cannot reach agreement, Landlord shall be entitled to market the Premises to others, provided however that if Tenant notified Landlord of its willingness to purchase the Premises and Landlord and Tenant failed to negotiate an acceptable purchase agreement, and thereafter Landlord elects to market the Premises for less than ninety (90%) percent of the price which Tenant had been willing to pay as its final offer in the preceding negotiations, then Landlord must again provide Tenant with Landlord's Offer Notice, revised to reflect the revised amount for which the Premises will be marketed (the "Revised Notice"). Thereafter Tenant shall have a period of ten (10) days from the receipt of the Revised Notice to indicate in writing to Landlord its willingness to match the terms of such offer, and Tenant shall have twenty (20) days from Tenant's receipt of Landlord's Revised Notice to negotiate with Landlord a purchase agreement acceptable to both parties. In the event that the parties cannot reach agreement, Landlord shall be entitled to market the Premises to others, provided that if Landlord thereafter desires to market the Premises for less than ninety (90%) percent of the price which Tenant had been willing to pay as its final offer in the immedaitely preceding negotiations, Landlord shall be required to again offer the Premises to Tenant pursuant to the above provisions. Nothing contained herein shall be deemed to grant Tenant an option to -33- purchase the Premises or a right of first refusal, nor to impose upon Landlord any obligation or liability to enter into an agreement with Tenant for the sale of the Premises. ARTICLE 37 - SECURITY -------- 37.1 - Tenant shall obtain at its sole cost and expense, and shall deposit with Landlord at the time of the execution of this Lease, an unconditional, clean, irrevocable and assignable letter of credit (the "Letter of Credit"), issued by a bank satisfactory to Landlord with banking operations in the State of New Jersey, in form and substance satisfactory to Landlord, in the amount (in United States dollars) of $1,000,000.00 as security for the faithful performance and observance by Tenant of any terms, provisions and conditions of this Lease, the nonperformance of which would obligate Landlord to incur any financial obligations, (including but not limited to, Tenant's financial obligations for Rent and for the costs of restoration of the Premises upon the expiration or earlier termination of the Term). It is agreed that in the event Tenant defaults in respect of any of the terms, provisions and conditions of this Lease, including but not limited to the payment of Fixed Rent and Additional Rent, Landlord may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any Fixed Rent, Additional Rent, assessments and levies or any other sum as to which Tenant is in default, or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of the terms, covenants and conditions of this Lease, including but not limited to, any damages or deficiency in the reletting of the Premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Landlord. The Letter of Credit shall (i) specify that it is irrevocable and, at the direction of Landlord, assignable to Landlord's successors and assigns of Landlord's interest under this Lease, at Tenant's sole cost and expense, (ii) be addressed to Landlord, (iii) be payable upon each presentation of a sight draft, accompanied by a statement signed by an authorized official of Landlord certifying that Tenant is in default hereunder, and (iv) be payable from the date of issuance up to a date which is not less than one year from the date of issuance. Landlord shall deliver to Tenant a copy of the certificate of Tenant's default presented by Landlord in connection with any draw upon the Letter of Credit. Tenant shall, not later than thirty (30) days prior to the expiration of the Letter of Credit or any replacements, substitutions or extensions thereof, as the case may be, furnish Landlord with a new letter of credit in accordance with the foregoing or an extension of the Letter of Credit then in effect. Upon an event of default under this Lease or if Tenant fails to furnish a new letter of credit or an extension as aforesaid within thirty (30) days prior to the expiration of the Letter of Credit or any replacement or extension thereof, Landlord may immediately draw upon the Letter of Credit in accordance with the terms hereof and apply the proceeds thereof in accordance with the provisions of this Section 37.1. ARTICLE 38 - GENERAL PROVISIONS ------------------ 38.1 - Tenant represents and agrees that it has not directly or indirectly dealt with any real estate brokers other than Keller, Dodds and Woodworth, Inc. in connection with this transaction. Tenant agrees to hold Landlord harmless from and against any claims for brokerage commission or finder's fee arising out of or based an any actions of Tenant with any other broker or brokers. -34- 38.2 - The laws of the State of New Jersey shall govern the validity, performance and enforcement of this Lease. 38.3 - The invalidity of one or more phrases, articles, sections, sentences, clauses or paragraphs contained in this Lease shall not affect the remaining portions of this Lease or any part thereof, and in the event that any one or more of the phrases, articles, sections, sentences, clauses or paragraphs contained in this Lease should be declared invalid by the final order, decree or judgment of a court of competent jurisdiction, this Lease shall be construed as if such invalid phrases, articles, sections, sentences, clauses or paragraphs had not been inserted herein. 38.4 - Tenant shall not record this Lease, but if either party should desire to record a short form Memorandum of Lease setting forth only the parties, the Premises and the term, such Memorandum of Lease shall be executed, acknowledged and delivered by both parties upon notice from either party. 38.5 - Tenant agrees to give any mortgagees, by Registered Mail, a copy of any Notice of Default served upon the Landlord, provided that prior to such notice tenant has been notified, in writing, (by way of Notice of Assignment of Rents and Leases, or otherwise) of the address of such mortgagees. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then the mortgagees shall have an additional thirty (30) days within which to cure such default or if such default cannot be cured within that time, then such additional time as may be necessary if within such thirty (30) days, any mortgagee has commenced and is diligently pursuing the remedies necessary to cure such default (including not but limited to commencement of foreclosure proceedings, if necessary to effect such cure), in which event this Lease shall not be terminated while such remedies are being so diligently pursued. Tenant reserves the right to withdraw or limit any such Notice of Default and to remain in the Premises during such efforts to cure Landlord's default. IN WITNESS WHEREOF, Landlord and Tenant have caused their names to be signed and their seals affixed the day and year first above written. Witness: ONE RESEARCH WAY PARTNERS, a New Jersey limited partnership, Landlord _________________________________ By:__________________________________________ Jon Lundberg General Partner _________________________________ By:__________________________________________ C. Lawrence Keller -35- General Partner _________________________________ By: ______________________________________________ Stuart Alpert General Partner Attest: THE LIPOSOME COMPANY, INC., Tenant _________________________________ By: ______________________________________________ -36- EX-21 8 LIST OF SUBSIDIARIES EXHIBIT 21 Subsidiaries ------------ Name Place of Incorporation - ---- ---------------------- The Liposome Company Japan, Ltd. Tokyo, Japan Liposome Holdings, Inc. Delaware Nichiyu Liposome Company, Ltd. Tokyo, Japan The Liposome Manufacturing Delaware Company, Inc. The Liposome Company Ltd. United Kingdom Liposome SARL France Liposome SL Spain Liposome Pty Ltd. Australia EX-23 9 CONSENT OF COOPERS & LYBRAND EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of The Liposome Company, Inc. on Form S-8 (File No. 33-49502) of our report dated February 2, 1995, on our audits of the consolidated financial statements of The Liposome Company, Inc. as of December 31, 1994 and 1993, and for the years ended December 31, 1994, 1993, and 1992, which report is included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Princeton, New Jersey March 20, 1995 EX-27 10 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 7,249 55,487 1,618 0 748 60,672 28,220 10,534 93,196 8,926 5,917 240 0 3 78,110 93,196 0 10,440 0 44,093 0 0 308 (33,653) 0 (33,653) 0 0 0 (33,653) (1.64) 0 EPS - diluted not calculated because the effects would be anti-dilutive.
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